2.6 Flashcards
macroeconomic objective 1
strong and stable growth
macroeconomic objective 2
low unemployment
macroeconomic objective 3
low and stable inflation
macroeconomic objective 4
balanced trade account
macroeconomic objective 5
balanced government budget
macroeconomic objective 6
environmental protection
macroeconomic objective 7
greater income equality
interest rate
cost of borrowing, reward for saving
near 0 to respond to 08 but increased now (base)
bank of england tools
bank base rate (affects all interest rates via signalling)
quantitative easing (create new money)
forward guidance (consumer confidence by announcing funding and stuff)
IR ↓ on economy
signal to retail bank
C/I ↑
AD shift
RO, GDP ↑
u/e ↓
BUT PL ↑ & -ve output gap
IR ↑ on economy
signal to retail bank
C/I ↓
AD shift
RO, GDP ↓
u/e ↑
PL ↓
sacrifice GDP for price stability
IR ↓ on income equality
equality improves as
mortgages are less, more spending money
boost employment
typically higher earners save more so returns fall
IR ↓ on income equality EVAL
time length, diff for everyone e.g. high earners dont always save more, asset prices
issues with economic growth as measure of living standards
not distributed equally
environment
happiness/ QoL
population
price level?
fiscal policy
government spending and taxation to stabilise economy, affects AD SRAS LRAS
austerity
reduce gov. budget deficit by cutting spending or increasing tax
expansionary fiscal policy
↑G on transfer payments or state sector and crowding in
↓Taxation if disposable Y↑ or more profit for firms investment
AD shifts right
contractionary fiscal policy
G↓ on public (wage, benefit), crowding out
↑Taxation if disposable Y↓ or less profit for firm investment
G>T
deficit so issue more bonds, public debt increases and total interest on bonds
G<T
surplus so no need for more bonds, bonds mature so debt decrease and future borrowing is cheaper and credible
crowding in
gov. spending increases private investment, e.g. G↑ infrastructure, health so increase in productivity
so I↑ as more attractive
crowding out
gov. spending fails to increase AD as fall in private investment/ spending (cant compete with gov, higher taxes asw)
laffer curve
tax cut can increase revenue as
more incentive to work/ invest, less to avoid and evade taxes and move (& vice versa, ppf)
issue with cutting gov. spending
negative multiplier spiral, in attempt to reduce deficit, growth reduces and less tax revenue which offsets spending cuts
main uk supply-side weaknesses
low R&D spending
low investment
skills shortages
economic activity (NEETS)
low labour motility
ageing infrastructure
regional economic imbalances
productivity gap
supply-side policies
set of economic measures and strategies to improve long-run productive capacity and efficiency (long-term growth and favourable environments businesses)
