2.6.2 - possible macroeconomic objectives Flashcards
What is the goal of governments regarding economic growth?
Governments aim to have strong, sustained, and sustainable economic growth for the long run.
Why is fast economic growth not ideal?
Fast economic growth is not sustainable as it can cause environmental damage and increase inflation.
What factors are considered in economic growth?
Income and living standards, which should both be high.
What might governments in emerging economies prioritize before economic growth?
Governments might aim to increase economic development, improving living standards, life expectancy, and literacy rates.
What is the goal of governments regarding unemployment?
Governments aim to have as near to full employment as possible for higher productivity (output per worker), less poverty and international competitiveness
Why are unemployed individuals more likely to be in poverty?
They do not contribute to tax revenue and receive welfare from the government.
What is the UK government’s target inflation rate?
The target is 2%, measured by CPI.
What is inflation?
A sustained increase in the general price level of goods and services in an economy in a given period of time - decreasing purchasing power of money
What is deflation?
A sustained decrease in the general price level of goods and services in an economy in a given period of time - increasing purchasing power of money but discourages spending and investment as people expect prices to go down more
What is disinflation?
A fall in the rate of inflation, where prices are still rising but at a slower rate.
What does low and stable inflation help?
This aims to provide price stability for firms and consumers and will help them make decisions for the long run.
What is the balance of payments equilibrium on the current account?
Record of all the economic transactions between the country and the rest of the world
What is the current account?
Net trade in goods and services, foreign aid, transfers made to foreign investors
Why is a balance of payments equilibrium important?
It allows the country to sustainably finance the current account, crucial for long-term growth.
What are the two main components of the balance of payments?
The current account and the capital and financial account.
What happens in a current account deficit?
Imports are more valuable than exports.
What happens in a current account surplus?
Exports are more valuable than imports.
What are imports?
Goods or services bought from abroad, with money flowing outward. Important as customers want goods and services from other countries
What are exports?
Goods or services sold abroad, with money flowing inward. Important as brings capital to country
In terms of trade, to be internationally competitive how should an economy be?
Exports and imports must be balanced
Why is balancing the government budget important?
It ensures control of state borrowing and prevents national debt from escalating. This allows GOV to borrow cheaply in future and make repayments easier - achieved through GOV spending and taxation, eg. reducing national debt by raising taxes
What is austerity?
Government creating difficult economic situations to reduce public expenditure
What is fiscal balance?
GOV tax revenue - GOV spending
Why is protecting the environment important?
It ensures resources are not exploited and are available for future generations, as well as reducing excessive pollution
What is intergenerational equity?
Leaving a planet with the same or more opportunities for future generations.
What is intragenerational equity?
The distribution of resources within the current generation.
What are key macroeconomic indicators?
Growth of real GDP, real GDP per capita, inflation rate, unemployment rate, and balance of trade.
Why is greater income equality important?
Minimises the gap between the rich and poor, an unequally distributed income is a sign of a falling economy
What is current trend for economic growth?
2.50%
What is the aim for unemployment rate?
3%
