2.6 Macroeconomic objectives and policies

Question 1

7 macroeconomic objectives

Answer 1

Low and stable inflation
Low unemployment
Economic growth
Balance of payments
Balances fiscal budget
Protection of the environment

Question 2

What are demand side policies?

Answer 2

Policies designed to manipulate consumer demand

Question 3

What is a fiscal policy?

Answer 3

The use of borrowing, gov. spending and taxation to manipulate the level of AD

Question 4

What is a monetary policy?

Answer 4

Where the central bank or regulatory authority attempts to control the level of AD

Question 5

What is expansionary and deflationary policies?

Answer 5

Expansionary - increase AD to bring about growth
Deflationary - Decrease AD to control inflation

Question 6

What is an example of a monetary policy?

Answer 6

Interest rates: control them to control AD

Question 7

What are some problems with this method of demand management?

Answer 7

Could cause a balance of trade deficit
Lack of confidence in the economy

Question 8

What is an example of a monetary supply policy?

Answer 8

Quantitative easing: Bank of England buys assets in exchange for money in order to increase money supply and get more money moving around the economy

Question 9

What are some problems with quantitative easing?

Answer 9

Could lead to hyperinflation
Only increase demand for second hand goods