2.6.1 Possible macroeconomic objectives Flashcards
What are the macroeconomic objectives?
/Economic growth
/Low unemployment
/Low and stable rate of inflation
/Balance of payments equilibrium on the current account
/Balanced government budget
/Environmental protection
/Greater income equality
What is the economic growth target?
Annual target rate of 2-3%. This is considered to be sustainable growth. Growth at this rate is less likely to cause excessive demand pull inflation.
What does economic growth have impacts on?
Economic growth has positive impacts on confidence, consumption, investment, employment, incomes, living standards and government budgets.
What is the target for unemployment rate?
The target unemployment rate for the UK is 4-5%. This is close to the full employment level of labour (YFE). There will always be a level of frictional unemployment. This makes it impossible to achieve 100% employment.
What is the relationship between unemployment and real GDP growth?
This is close to the full employment level of labour (YFE)
/There will always be a level of frictional unemployment
/his makes it impossible to achieve 100% employment
What is the target rate for inflation?
The UK has a target inflation rate of 2% using the Consumer Price Index (CPI)
What are demand side policies?
Demand-side policies ease demand pull inflation.
What are supply side policies?
Supply-side policies ease cost push inflation.
Why is a low stable rate of inflation important?
A low & stable rate of inflation is important as it
/Allows firms to confidently plan for future investment
/Offers price stability to consumers
What is a balance of payments on the current account?
The current account focuses mainly on the financial transactions related to exports and imports of goods/services.
/If exports > imports it will create a current account surplus
/If imports > exports, it will create a current account deficit
A current account deficit is more problematic in the long-run
What is the UK’s current account balance?
The UK has traditionally run a small deficit. As a % of GDP the UK current account deficit is insignificant so has not been problematic.
What is a balanced government budget?
The Government Budget is presented annually and includes the forecasted revenue and expenditure.
/If expenditure > revenue, there is a budget deficit
Any deficit has to be financed through public sector borrowing.
What happens if UK government debt gets too high?
If the UK Government debt becomes too high (expressed as a % of GDP), then lenders begin to lose confidence in the Government’s ability to repay the debt. The Government then has to raise the interest rate it offers to lenders, which makes borrowing more expensive.
What is the current government budget?
Deficit.
What is the governments environmental aim?
In April 2021, the UK Government stated that their environmental aim was to reduce emissions by 78% by 2035. Other aims are a focus on sustainability and reduction of negative externalities of production.
