2.6 Macroeconomic Objectives and Policies Flashcards
List the 7 macroeconomic objectives
High economic growth (2.5%)
Low unemployment (4%)
Low inflation (2%)
Balanced current account
Reduce inequality
Environmental Impact
Reduce budget deficit
Explain the role of demand side policies
Demand side policies influence the AD
What are the tools involved with monetary policy
Interest rates, Quantitative easing, Exchange rates
Explain the role of the MPC
To predict the rate of inflation 24 months in the future, and to set the rate of interest and level of quantitative easing
Explain how quantitative easing may lead to greater inflation and real output
The government buys bonds off of banks providing banks with more money to lend to investors and consumers increasing investment and consumer spending shifting AD outwards + asset price increase means positive wealth effect
Give two disadvantages of using the base rate
Trade off of macroeconomic objectives
No guarantee of retail banks lowering their rates to the base rate
Give two disadvantages of Quantitative easing
Trade off of macroeconomic objectives
Long term inflationary pressure due to greater money supply in the economy
What are the tools involved with fiscal policy
Government spending, taxation and borrowing
What is a direct tax
Tax that is on your income
What is an indirect tax
Tax that is put on goods and services
Explain the difference between budget surplus and deficit
Surplus - Tax > Gov Spending
Deficit - Tax < Gov Spending
Explain the difference between automatic stabilisers and discretionary spending
An automatic stabiliser is spending automatically as a result of something happening
Discretionary spending is where the government chooses to spend money
Give two disadvantages of fiscal policy
Time lags
Imperfect data - could lead to gov failure
Explain the role of supply side policies
Any policy intending to increase the productive potential of an economy (Q^2CELL)
Explain the difference between market-based and interventionist methods
Market-Based - Remove barriers to make markets work more efficiently
Interventionist - Designed to correct market failure
Explain how supply-side policies could help reduce unemployment
Many supply side policies are expansionary, which promotes job creation
Long term improvements in the economy could be good for job creationb
Explain how supply-side policies can help to reduce inflation
Expansion in LRAS leads to fall in price level. Improvements in efficiency and productivity help to reduce business costs and prices
Explain how supply-side policies can help to reduce a current account deficit
Improvements in competitiveness means exports are more competitive in the foreign market, improving the current account
Give two disadvantages of supply-side policies
Time lags
Cost
