2.6 macroeconomic policies & objectives

Question 1

name macroeconomic objectives ELSBBPG

Answer 1

economic growth
low unemployment
stable rate of inflation
balance of payments equilibrium
balanced govt budget
protection of the environment
greater income equality

Question 2

key benefits of economic growth as an objective

Answer 2

job creation
improved international competitieness of UK economy
multiplier and accelerator benefits
lower govt spending on job seekers allowance

Question 3

key benefits of unemployment as an objective

Answer 3

improved standards of living
lower govt spending on unemployment related welfare
reduce poverty
social benefits (reduced crime)

Question 4

key benefits of inflation as an objective

Answer 4

stability –> consumer confidence

Question 5

key benefits of balance of payments as an objective

Answer 5

a surplus or equilibrium on the current account is desired

wider choice of goods for the consumer & enhances consumers standards of living

Question 6

define monetary policy

Answer 6

the manipulation of the rate of interest, the money supply & exchange rates to influence the level of economic activity.

Question 7

define fiscal policy

Answer 7

the manipulation of govt spending, taxation & govt borrowing to influence the level of economy activity. Fiscal policys aim is to keep inflation on target (2%)

Question 8

monetary policy instruments

Answer 8

interest rates & asset purchases to increase the money supply (quantitative easing)

Question 9

fiscal policy instruments

Answer 9

govt spending & taxation

Question 10

contractionary monetary policy

Answer 10

increasing interest rates to reduce inflationary pressures.

makes saving more attractive & reduces consumption

Question 11

contractionary monetary policy DIAGRAM

Answer 11

AD graph shifts down and left

Question 12

expansionary monetary policy explained

Answer 12

cut interest rates.

making borrowing more attractive thus increasing consumption

Question 13

direct tax & 3 exmaples

Answer 13

imposed on the income of individuals or firms, directly to the govt

income
coroporation
inheritance

Question 14

indirect tax & 3 exmaples

Answer 14

imposed on goods or services

value added tax
excise duty
customs duty

Question 15

expansionary fiscal policy - aim to stimulate growth - example

Answer 15

cut tax so consumption rises (diagram: AD shift right & up) & employment is created

Question 16

contractionary fiscal policy - aim to keep inflation stable- example

Answer 16

increase tax so consumption falls & balance of payments is improved

Question 17

Supply side policies

Answer 17

policies that seek to improve the long run productive potential of the economy. A successful supply side policy will shift a countrys productive possibility frontier to the right.

Question 18

how do market based supply side policies work

Answer 18

Allow the free market to operate with government reducing its role in the market

Question 19

how do interventionist supply side policies work

Answer 19

involved govt intervention to tackle market failure

Question 20

weaknesses of supply side policies

Answer 20

time lags
cost
policies of competing nations getting in the way
likelihood of govt failure

Question 21

what is the short run phillips curve & who was it created by

Answer 21

philips studied the relationship between unemployment & the rate of change in money wages

The implication of this for govt policy was that a certain level of unemployment could be traded off against a certain level of inflation
= if everyone were employed, there would be a lot of demand lot of consumption, inflation would go up off the charts!

Question 22

what are the limitations of the phillips curve

Answer 22

only works for the short term because fails to recognise stagflation wherein there is both high unemployment & high inflation