2.6 Macroeconomic objectives and policies Flashcards
(120 cards)
Seven macroeconomic objectives
-control inflation
-economic growth
-reduce unemeployment
-improve the balance of payments
-improve government debt
-improved sustainability
-reduce inequality
how do the government achieve their objectives?
through monetary and fiscal policy
In a recession what do the government do?
They often increase AD to increase employment and economic growth
In a boom what do the government do?
they will decrease AD to decrease inflationary pressures. They may also use supply side policies, which aim to bring about long-term growth
Expansionary policy
aimed at increasing AD to bring about growth
deflationary policy
attempts to decrease AD to control inflation.
Monetary policy
where the central bank or regulatory authority attempts to control the level of AD by altering base interest rates or the amount of money in the economy
Fiscal policy
use of borrowing, government spending and taxation to manipulate the level of aggregate demand and improve macroeconomic performance.
two tools of demand management
-government spending
-taxation
tools of tight fiscal policy
-increase taxation
-decrease government spending
what is tight policy is also known as
contractionary
tools of loose fiscal policy
-decrease taxation
-increase government spending
Impact of tight policy on inflation
-raised taxes leads to a drop in aggregated demand do inflation drops (disinflation), inflation is controlled
Impact of tight policy on economic growth
-dropped demand means firms will produce less, which will reduce output hence less economic growth
Impact of tight policy on unemployment
-as firms are producing less, there won’t be as many jobs avaliable, which will increase the rate of unemployment
Impact of tight policy on increased sustainability
-less produced so therefore less non renewals used making everything more sustainable
Impact of tight policy on government debt
-in short run, deficit will be reduce as taxes increased and government spending reduced.
Impact of tight policy on inequality
-more people are facing inequality, as unemployment has increased. however the gap will be smaller, due to higher taxes and a drop in demand
Impact of tight policy on balance of payments
-improve as exports will increase and imports will decrease.
-drop in demand leads to drop in imports
-In LT exports should increase as exports should become more competitive and therefore increase
Evaluation impact of tight policy on inflation
depends on the type of inflation. demand pull inflation will have a greater impact than cost push
Evaluation impact of tight policy on economic growth
depends on the magnitude of tight policy
Evaluation impact of tight policy on unemployment
ST/LT as in LT workers will be needed, depends on what industry, occupational and geographical mobility
Evaluation impact of tight policy on sustainability
less government subsides due to less money in the circular flow means less investment in green and sustainable projects
Evaluation impact of tight policy on governement debt
In LT government debt will increase as more ar eunemployed and claiming JSA/benefits