2.6 Macroeconomic Objectives And Policies

Question 1

What is protectionism

Answer 1

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

Question 2

What is a quota?

Answer 2

A limited quantity of a product being imported/ exported from a country

Question 3

What is a tariff?

Answer 3

A tax on imports

Question 4

What are the governments macroeconomic objectives? (TIGERS)

Answer 4

T rade
I nflation
G rowth
E mployment
R edistrution of income (income inequality)
S ustainability

Question 5

right-wing economists/ politicians

Answer 5

(the racists)
Argue inequality is positive, as it increases competition
so they reduce taxes on the rich, so theres a greater inequality of income

Question 6

left- wing economists/ politicians

Answer 6

(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

Question 7

Privatisation

Answer 7

allows selling gov-owned businesses to be privately owned
allows the companies to move goods quicker and be more efficient

Question 8

Deregulation

Answer 8

removing regulations to allow firms to grow easier

Question 9

Quantitive easing

Answer 9

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

Question 10

What is a government bond?

Answer 10

Type of IOU (I owe you)
You lend money to the gov by buying a government bond

Question 11

Whats the coupon rate of a bond?

Answer 11

The fixed amount of interest rate paid by the Gond issuer
Expressed as a % of the face value from when brought
The coupon rate is fixed, meaning if the face value changes, the bond will still have a coupon rate of the same amount of £, but will be a different percentage

E.g £1000 and with 5% coupon rate means they pay you £50 each yeah until maturity

Question 12

Whats the yield of a bond?

Answer 12

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.

Question 13

How can a higher interest rate affect a bond?

Answer 13

When new interest rates come out, new bonds are issued with higher coupon rates
Decreasing demand and price of old gov bond
If price decreases of bond, yield increases of bond, meaning higher rates return on old bonds

Question 14

How can QE decrease interest rates?

Answer 14

In QE, the centra bank buys gov bonds in large amounts
Increasing the demand for them, increasing their price
So yield of bond decreases due to higher market price of bond
Gov bonds influence other interest rates
Hence, if a gov bond yield decreases, other interest rates in whole economy also decrease
Leading to lower interest rates
- which encourage borrowing and decreases saving
- increasing AD

Question 15

The base rate

Answer 15

Central banks, like Bank of England, have a headline rate of interest that influences other interest rates

Question 16

What are the 2 types of demand-side policies?

Answer 16

Monetary policies - manipulation of the gov using monetary variables, through interest rates, quantitive easing
Fiscal policies - use of taxes, gov spending and borrowing

Question 17

Monetary Policee Committee (MPC)

Answer 17

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

Question 18

Public Sector Net Borrowing (PSNB)

Answer 18

The borrowing from the gov when in fiscal deficit

Question 19

Expansionary fiscal/ monetary policy

Answer 19

Increases AD

Question 20

Contractionary fiscal/ monetary policy

Answer 20

Decreases AD

Question 21

Neutral fiscal/ monetary policy

Answer 21

keeps AD the same

Question 22

Bottlenecks

Answer 22

supply-side constraints that prevent the economy from growing
E.g a senior manager is slow at approving of tasks

Question 23

The 2 types of supply-side policies

Answer 23

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

Question 24

Ways of increasing competition

Answer 24

Privitisation
deregulation
competition policies - reduces power of monopolies
industrial policy - gov policy to support firms which are important for growth

Question 25

Trade unions

Answer 25

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

Question 26

Market-based policies

Answer 26

supply-side policy Aimed to increase productivity and efficiency in the market, by reducing government intervention and letting the market operate more freely Increase competition: - Privitisation - deregulation - competition policies - industrial policies Labour reforms: - Improving labour flexibility - Reduce Trade unions' power Taxes, like min wages

Question 27

Interventionist policies

Answer 27

supply-side policy all down to gov spending: education infrastructure subsidies

Question 28

Macroeconomic conflicts

Answer 28

Economic growth vs inflation unemployment vs inflation economic growth vs Balance of payments budget deficit vs economic growth economic growth vs environment

Question 29

Philips curve

Answer 29

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

Question 30

What are the simplified demand and supply policies you need to know?

Answer 30

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 reduction of power Interventionist policies - Gov spending to increase supply, so on: -infrastructure -education -subsidies