2.6.1 - Possible Macroeconomic Objectives

Question 1

What Are The 7 Possible Macroeconomic Objectives?

Answer 1

~ Economic growth.
~ Low unemployment.
~ Low & stable rate of inflation.
~ Balance of payments equilibrium on the current account.
~ Balanced government trade.
~ Protection of the environment.
~ Greater income inequality.

Question 2

Why Do Governments Intervene In An Economy?

Answer 2

In an attempt to improve its economic performance.

Question 3

Describe The Macroeconomic Objective Of Economic Growth
(4 Points)

Answer 3

~ Is the central macroeconomic aim of most governments.
~ Many developed nations have an annual target rate of 2-3%.
~ Politicians often use it as a metric of the effectiveness of their policies and leadership.
~ Economic growth has positive impacts on the following;
-> Confidence.
-> Consumption.
-> Investment.
-> Employment.
-> Incomes.
-> Living standards.
-> Government budgets.

Question 4

Describe The Macroeconomic Objective Of Low Unemployment
(3 Points)

Answer 4

~ Target unemployment rate for the UK is 4-5%.
~ Unemployment tends to be inversely proportional to real GDP growth.
~ Unemployment in the UK remained relatively high for the six years following the global financial crisis.

Question 5

Describe The Macroeconomic Objective Of Low And Stable Rate Of Inflation
(5 Points)

Answer 5

~ The UK has a target rate of inflation of 2% using CPI.
~ A low rate of inflation is desirable as it is a symptom of economic growth.
~ Demand side policies ease demand pull inflation.
~ Supply side policies ease cost push inflation.
~ A low and stable rate of inflation is important as it allows firms to plan for future investment and also offers price stability to consumers.

Question 6

Describe The Macroeconomic Objective Of Balance Of Payment Equilibrium On The Current Account
(3 Points)

Answer 6

~ Governments aim for a balance of payments equilibrium on the current account, which is important for long term growth.
~ If exports are greater than imports, this leads to a current account surplus.
~ If imports are greater than exports, this leads to a current account deficit.

Question 7

Describe The Macroeconomic Objective Of Balanced Government Budget
(3 Points)

Answer 7

~ The government budget is presented annually and includes the forecasted revenue and expenditure.
~ The UK government aims to run a balanced budget.
~ If expenditure is greater than revenue, there is a budget deficit.

Question 8

Describe The Macroeconomic Objective Of Protection Of The Environment
(3 Points)

Answer 8

~ Aims to provide long run environmental stability.
~ Ensures resources used are not exploited and are used sustainably, so that future generations have access to them.
~ Ensures the reduction in negative externalities of production.

Question 9

Describe The Macroeconomic Objective Of Greater Income Inequality
(3 Points)

Answer 9

~ High levels of this creates social unrest and may lead to revolutions.
~ Is measured using the gini coefficient.
~ Minimises the gap between the rich and the poor, generally associated with a fairer society.

Question 10

What Is The Gini Coefficient?

Answer 10

Measures the distribution of income in a population.

Question 11

Describe The Gini Coefficient
(2 Points)

Answer 11

~ Most developed countries have a gini target of 0.3 - 0.4.
~ The closer the value to 1 the worse the income inequality.