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Ricardo A Level Economics (AQA) > 4.9.1 - The Objectives of Government Economic Policy > Flashcards

4.9.1 - The Objectives of Government Economic Policy Flashcards

1
Q

What is a policy objective?

A

A target or goal that policy-makers aim to achieve.

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2
Q

What are the broad economic objectives of the government since WW2?

A
  • Achieve economic growth
  • Improve living standards
  • Create and maintain full employment
  • Limit / control inflation
  • Attain a satisfactory balance of payments
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3
Q

What is short-run economic growth?

A

Growth of real output as a result of using idle resources (labour etc.) to take up slack in the economy.

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4
Q

What is long-run economic growth?

A

An increase in the economy’s potential level of real output, and an outward movement of the economy’s production possibility frontier.

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5
Q

How can short-run economic growth occur?

A

When excess capacity in the economy is used up.

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6
Q

How can long-run economic growth occur?

A
  • Productivity increases
  • Demographic changes
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7
Q

What is Gross Domestic Product?

A

The sum of all goods and services, or level of output, produced in the economy over a period of time.

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8
Q

What is real GDP?

A

A measure of all goods and services produced in an economy, adjusted for price changes or inflation. The adjustment transforms changes in nominal GDP, which is measured in money terms, into a measure that reflacts changes in the total output of the economy.

Essentially, GDP with inflation taken into account.

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9
Q

What is nominal GDP?

A

GDP measured at the current market rates, without removing the effects of inflation.

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10
Q

What is the Eurozone?

A

The name for the group of countries that have replaced their national currencies with the Euro.

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11
Q

What is a recession?

A

A recession (in the UK) is defined as 6 months or more of negative economic growth.

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12
Q

How can stockpiling effect short-term economic performance?

A

People purchasing large quantities of goods in fear of those same goods becoming unavailable will lead to short-term economic growth.

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13
Q

What is full employment (according to Beveridge)?

A

3% or less of the labour force being unemployed.

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14
Q

What is full employment (according to the free-market)?

A

The level of employment where the number of workers wanting to work is equal to the number employers are looking to hire.

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15
Q

Why do free-market economists disregard Beveridge’s definition of full employment?

A

The 3% point is regarded to have a lack of theoretical underpinning.

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16
Q

Why was Beveridge’s report so influential?

A

His white paper on employment policy effectively committed governments to achieving full employment.

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17
Q
A
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18
Q

What is the claimant count?

A

The method of measuring unemployment according to those who are claiming unemployment related benefits.

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19
Q

What is the Labour Force Survey?

A

A quarterly sample survey of households in the UK. To provide information on the UK Labour market.

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20
Q

What are the methods used to measure unemployment in the UK?

A
  • The claimant count
  • The Labour Force Survey (LFS)
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21
Q

Why has the UK government moved away from the claimant count as a measure for overall employment levels?

A
  • Not all people claim benefits.
  • Some people fraudulently claim benefits while working in the ‘hidden’ economy.
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22
Q

What is inflation?

A

A persistent or continuing rise in the average price level.

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23
Q

What is deflation?

A

A continuing tendency for the average price level to fall.

24
Q

What is the price index?

A

An index number showing the extent to which a price, or ‘basket’ of prices, has changed over a month, quarter or year, in comparison with the price(s) in a base year.

25
Q

What is the Consumer Prices Index?

A

The official measure used to calculate the rate of consumer price inflation in the UK. It calculates the average price increase of a basket of 700 different consumer goods and services.

26
Q

What is the Retail Prices Index?

A

A measure formerly used to calculate the rate of consumer price inflation in the UK.

27
Q

What is indexation?

A

The automatic adjustment of items such as pensions and welfare benefits to changes in the price level, through the use of a price index.

28
Q

What is ‘core’ inflation?

A

Volatile items such as food or fuel.

(Which have been omitted from the CPI calculation of inflation)

29
Q

What is ‘headline’ inflation?

A

Items that are temporarily influenced by factors that are mainly of short-term nature.

30
Q

What is the balance of payments?

A

A record of all the currency into and out of a country in a particular time period.

31
Q

What is the current account?

A

Measures all the currency flows into and out of a country in a particular time period in payment for exports and imports of goods and services, together with primary and secondary income flows.

32
Q

What are exports?

A

Domestically produced goods or services sold to residents of other countries.

33
Q

What are imports?

A

Goods or services produced in other countries then sold to residents of this country.

34
Q

What is the balance of trade?

A

The difference between the money value of a country’s imports and its exports. Balance of trade is the largest component of a county’s balance of payments on current account.

35
Q

What is the balance of trade deficit?

A

When the money value of a country’s imports exceed the money value of its exports.

36
Q

What is a balance of trade surplus?

A

When the money value of a country’s exports exceed the money value of its imports.

37
Q

What is a ‘satisfactory’ balance of payments?

A

A situation in which the current account is in equilibrium, or when there is a small surplus or a small but sustainable deficit.

38
Q

What is balancing the budget?

A

When government spending equals government revenue. (G=T)

39
Q

What is a budget deficit?

A

When government spending is greater than government revenue. (G>T)

40
Q

When did balancing the budget become a more important macroeconomic objective?

A

Following the 2008-09 recession, balancing the budget has become a far more important macroeconomic objective.

41
Q

Why are trade-offs necessary?

A

It is virtually impossible to achieve all economic goals at the same time.

42
Q

What are the main policy conflicts in the UK?

A
  • Full employment and growth against a satisfactory balance of payments.
  • Full employment and growth against controlling inflation.
  • Economic growth against greater income equality.
  • Current living standards against future living standards.
43
Q

What do some economists think about long-term policy conflicts?

A

In the long-run, some economists believe that all policy objectives are achievable.

44
Q

What is Keynesian economics?

A

General belief that governments should manage the economy, through the usage of fiscal policy.

45
Q

What are pro-free-market economists?

A

Those who dislike government intervention and prefer the operation of the free-markets.

46
Q

What is monetary policy?

A

Adjustments to the money supply and interest rates by the government of England and Bank of England to achieve the government’s policy objectives.

47
Q

What is fiscal policy?

A

The use by the government of government spending and taxation to try to achieve the government’s policy objectives.

48
Q

What is the balance of payments equilibrium?

A

A situation in which deficit or surplus on the current account of the balance of payments is exactly matched by capital inflows or outflows in the other parts of the balance of payments.

49
Q

When was the Keynesian era in UK politics?

A

1945 to 1979.

50
Q

What is the overarching goal of Keynesian economics?

A

Achieve full employment, economic growth and a generally acceptable or fair distribution of income and wealth.

51
Q

What is the ‘prime’ economic goal according to Keynes?

A

Increase human happiness and economic welfare.

52
Q

Why were policy objectives such as controlling inflation or achieving a satisfactory balance of payments less important under Keynes?

A

They were intermediary goals insofar as without controlled inflation or achieving a satisfactory balance of payents, it could be impossible to achieve full employment and economic growth.

53
Q

Why did Keynesian economics fall out of popularity in 1980?

A

The election of Thatcher.

54
Q

Why did Keynesian economics less favoured by the UK in the 1970s?

A

Inflation began spiralling out of control, so UK governments were forced to place controlled inflation as the primary policy goal. This relegated full employment to a reduced priority as a result.

55
Q

How has the opinion on inflation changed since Keynes?

A

Inflation must first be brought under control to even think about increasing employment.

56
Q
A
57
Q

What is disinflation?

A

When the rate of inflation is falling, but still postive.

Ricardo A Level Economics (AQA) (81 decks)

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