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?

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

Whats the coupon rate of a bond?

Answer 10

the set interest rate of a bond

Question 11

Whats the yield of a bond?

Answer 11

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 12

The base rate

Answer 12

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

Question 13

What are the 2 types of demand-side policies?

Answer 13

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

Question 14

Monetary Policee Committee (MPC)

Answer 14

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 15

Public Sector Net Borrowing (PSNB)

Answer 15

The borrowing from the gov when in fiscal deficit

Question 16

Expansionary fiscal/ monetary policy

Answer 16

Increases AD

Question 17

Contractionary fiscal/ monetary policy

Answer 17

Decreases AD

Question 18

Neutral fiscal/ monetary policy

Answer 18

keeps AD the same

Question 19

Bottlenecks

Answer 19

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

Question 20

The 2 types of supply-side policies

Answer 20

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 21

Ways of increasing competition

Answer 21

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

Question 22

Trade unions

Answer 22

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 23

Market-based policies

Answer 23

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

Question 24

Interventionist policies

Answer 24

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

Question 25

Macroeconomic conflicts

Answer 25

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

Question 26

Philips curve

Answer 26

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 27

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

Answer 27

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