2.6.1, Macroeconomic objectives Flashcards
What are the 4 main macroeconomic objectives?
- High sustainable economic growth
- Low unemployment
- Low inflation
- Balanced current account
What are the other 3 objectives?
- Reducing the budget deficit
- Reducing inequality
-Environment
What is the inflation target (per 12 months)?
2%
How do you calculate current account?
Exports - Imports (x-m)
What are the benefits of achieving High sustainable economic growth?
->Higher living standards - higher incomes so people are materially better off
-> Improved government finances - Greater tax revenues from increases economy act
What are the benefits of achieving low unemployment?
->Increased spending power for individuals
->Less crime, mental health issues
->Improved government finances - less to spend on benefits
What are the benefits of achieving low inflation?
-> Protects real term spending power i.e high inflation could mean a real terms cut in wages
-> Encourages investment - firms more likely to invest when prices are stable
-> Makes firms more competitive if inflation is lower than in rival economies
What are the benefits of achieving balanced current account?
-> Country can afford to pay for the imports that it consumes
-> A deficit means that each year there is an outflow of money (this means debt will build up over time)
What are the benefits of reducing the budget deficit?
-> Makes an borrowing more sustainable
-> Failing to reduce a large deficit leads to a rapid increase in national debt
What are the benefits of reducing inequality?
-> Fairness argument - High levels of inequality is unfair
-> Incentives - More equality could create greater work incentives for unemployed and low income workers
What are the benefits of achieving environment?
-> Not causing environmental armageddon
-> Sustainable growth - reducing environmental impact today increases the economic prosperity for people tomorrow
