2.6 Macroeconomic objectives + policies

Question 1

5 microeconomic objectives

Answer 1

economic growth, low unemployment, low and stable inflation, balance of payments equilibrium and fair distribution of income

Question 2

Purpose of demand side policies

Answer 2

designed to stimulate consumer demand

Question 3

Difference between monetary and fiscal policy

Answer 3

monetary = control money flow through interest rates + QE; fiscal = govt spending and tax to influence AD

Question 4

Types of monetary policy

Answer 4

interest rates = a reduction in the base rate will lead to a rise in AD (lower cost of borrowing)
QE = method to increase money supply (used when inflation is low and interest rates cannot be lowered)

Question 5

Limitations of monetary policy

Answer 5

• banks might not pass the base rate onto consumers

- banks might be unwilling to lend

Question 6

Problems with quantitative easing

Answer 6

• it is very risky and if not controlled properly can cause high inflation (even hyperinflation)
• no guarantee higher asset prices = higher consumption (through the wealth effect) esp if confidence is low