2.6 Macroeconomic Objectives And Policies Flashcards
What is protectionism
Limits goods/ services coming into the country
Like Quotas and tariffs
Trade partnerships like the EU won’t need them
The higher the protectionism, the less trade between countries
What is a quota?
A limited quantity of a product being imported/ exported from a country
What is a tariff?
A tax on imports
What are the governments macroeconomic objectives?
T rade
I nflation
G rowth
E mployment
R edistrution of income (income inequality)
S ustainability
right-wing economists/ politicians
(the racists)
Argue inequality is positive, as it increases competition
so they reduce taxes on the rich, so theres a greater inequality of income
left- wing economists/ politicians
(the snowflakes)
argue they want equality in economy
everyone should have a certain living standard
gov intervenes as they believe free markets lead to inequalities
leads to higher taxes, but economy is more equal
Privatisation
allows selling gov-owned businesses to be privately owned
allows the companies to move goods quicker and be more efficient
Deregulation
removing regulations to allow firms to grow easier
Quantitive easing
a monetary policy where a central bank prints money electronically that is used to buy financial assets, like gov bonds or shares from financial institutions.
so they take these assets off them and give them money
the price of these assets increase and interest rates are lower
so people have more money to spend and its cheaper to borrow
increases C and AD
Whats the coupon rate of a bond?
the set interest rate of a bond
Whats the yield of a bond?
Yield = (coupon rate/ market price)x100
so if the market price goes up, the yield goes down, so its actual interest on the bond decreases.
The base rate
Central banks, like Bank of England, have a headline rate of interest that influences other interest rates
What are the 2 types of demand-side policies?
Monetary policies - manipulation of the gov using monetary variables, through interest rates, quantitive easing
Fiscal policies - use of taxes, gov spending and borrowing
Monetary Policee Committee (MPC)
from the Bank of England
makes the most important decisions about the monetary policy
they set the Bank of England base rate and manages QE
Public Sector Net Borrowing (PSNB)
The borrowing from the gov when in fiscal deficit
Expansionary fiscal/ monetary policy
Increases AD
Contractionary fiscal/ monetary policy
Decreases AD
Neutral fiscal/ monetary policy
keeps AD the same
Bottlenecks
supply-side constraints that prevent the economy from growing
E.g a senior manager is slow at approving of tasks
The 2 types of supply-side policies
Market based policies - policies designed to remove barriers to make working more efficient
Interventionist policies - policies designed to correct market failure, so by the gov intervening, so gov spending
Ways of increasing competition
Privitisation
deregulation
competition policies - reduces power of monopolies
industrial policy - gov policy to support firms which are important for growth
Trade unions
organisation of workers into one bargaining unit
helps people within their jobs
if they raise their wages that they give to people getting jobs, then employment and output will be lower in other markets, so the gov intervenes to restrict their power
Market-based policies
supply-side policy
Aimed to increase productivity and efficiency in the market, by reducing government intervention and letting the market operate more freely
Reduce competition:
- Privitisation
- deregulation
- competition policies
- industrial policies
Labour reforms:
- Improving labour flexibility
Trade unions
Taxes, like min wages
Interventionist policies
supply-side policy
all down to gov spending:
education
infrastructure
subsidies
Macroeconomic conflicts
Economic growth vs inflation
unemployment vs inflation
economic growth vs Balance of payments
budget deficit vs economic growth
economic growth vs environment
Philips curve
shows the trade off between unemployment (x axis) vs inflation (y-axis)
higher unemployment = lower the wages, so low inflation
higher the inflation, the higher wage rates are, so lower unemployment
What are the simplified demand and supply policies you need to know?
Demand-side policies:
Monetary policies
-Interest rates
- Quantitive easing
Fiscal policies
-Taxation
- Gov spending to increase AD, like subsidising firms, benefits, public sector pay/ spending
Supply-side policies:
Market-based policies
- Privatisation
-Deregulation
- Labour flexibility
- Trade unions
Interventionist policies
- Gov spending to increase supply, so on:
-infrastructure
-education
-subsidies
