2.6 Introduction to Macroeconomic Objectives

Question 1

Define what is meant by macroeconomic objectives

Answer 1

Where the government aim to create economic stability and remain on the long-term growth rate

Question 2

Define the term macreconomics

Answer 2

The branch of economics concerned with large-scale or general economic factors, such as interest rates and national productivity

Question 3

What are the 4 macroeconomic objectives?

Answer 3

• Stable Inflation
• Falling Unemployment
• Economic Growth
• Balance of Payments

Question 4

What is the target inflation rate?

Answer 4

2%

Question 5

How is inflation controlled by the government?

Answer 5

The Bank of England change the interest rate to keep it at 2%

Question 6

Why does unemployment mean the economy is not working at its full capacity?

Answer 6

Labour is a factor of production therefore not all factors are being used to their full potential

Question 7

How is economic growth measured?

Answer 7

GDP change over time

Question 8

Define aggregate supply

Answer 8

The total quantity of output in the economy at a given price level

Question 9

Define aggregate demand

Answer 9

The total demand for goods and services in the economy over a period of time

Question 10

Where on the AS graph is there spare capacity in the economy?

Answer 10

On the left

Question 11

Where on the AS graph are all resources fully available?

Answer 11

On the right

Question 12

What is fiscal policy?

Answer 12

The use of government spending through taxation and borrowing to influence the pattern of economic activity

Question 13

What is the formula for AD?

Answer 13

C + I + G + (X - M)

Question 14

Give 2 general advanatges of fiscal policy

Answer 14

• Has a small time lag

- Can also boost AS

Question 15

What economic measure does fiscal policy have an effect on?

Answer 15

Aggregate Demand

Question 16

Give 3 general disadvantages of fiscal policy

Answer 16

• Causes Demand-Pull inflation
• Government spending causes a budget deficit
• Results may not be as expected

Question 17

Give an evaluation point on why fiscal policy may not be good in certain circumstances

Answer 17

Will not boost GDP if the economy in near full capacity

Question 18

What is monetary policy?

Answer 18

Changes in the interest rate, the supply of money and credit and exchange rates to influence economic activity

Question 19

What does an increase in the interest rate cause in terms of the exchange rate of the domestic currency?

Answer 19

Appreciation

Question 20

What does a decrease in the interest rate cause in terms of the exchange rate of the domestic currency?

Answer 20

Depreciation

Question 21

What is meant by exchange rate policy?

Answer 21

Manipulating the exchange rates to help them meet macroeconomic objectives

Question 22

How do the government have control of the exchange rates?

Answer 22

Through the bank of England who set the interest rate

Question 23

What is meant by a ‘floating exchange rate’?

Answer 23

Where the exchange rate is left to its own devices to be decided by supply and demand

Question 24

Why do the government not really have control of the interest rate?

Answer 24

Because it is controlled by the BOE who are a separate entity

Question 25

Give 2 general advantages of using supply-side polices

Answer 25

• Sustainable economic growth

- Antiflationary

Question 26

Give 3 general disadvantages of using supply-side policies

Answer 26

• Time lag
• Not sustainable if the economy is at a high capacity
• Very expensive

Question 27

What does the Phillips Curve show?

Answer 27

Unemployment = Inflation

Question 28

Give 4 possible negative externalities of employment

Answer 28

• CO2 pollution
• Increased Wastage
• Traffic Pollution
• Water Pollution