2.6.1 possible macroeconomic objectives Flashcards
What is the government’s 4 main macroeconomic objectives?
- Economic growth
- Low unemployment
- Low and stable rate of inflation
- Balance of payments equilibrium on current account
What is the long run trend of economic growth in the UK?
It is about 2.5%.
Why may governments aim in emerging markets and developing economies aim to economic development before economic growth?
As this improves living standards, increases life expectancy and improves literacy rates.
What do governments aim to have their unemployment rate at?
At around 3%, in account for frictional unemployment.
What is the UK government’s inflation target?
2%.
What happens if inflation rate falls 1% outside the target 2%?
The Governor of the Bank of England has to write a letter to the Chancellor of the Exchequer to explain why this has happened and what the Bank intends to do about it.
What does a balance of payments equilibrium on the current account mean for a country?
It can sustainably finance the current account, which is important for long term growth.
What are some additional macroeconomic objectives the government might have?
- Balanced government budget
- Protection of the environment
- Greater income equality
Why may a government try to maintain a balanced government budget?
To ensure they keep control of state borrowing, so national debt doesn’t escalate. This allows governments to borrow cheaply in the future should they need to, and makes repayment easier.
What does the government aim of protecting the environment aim to do?
Provide long run environmental stability. It ensures resources used are not exploited, such as oil and natural gas, and that they are used sustainably so future generations can access them. Also not so there is not excessive pollution.
