6.1 The objectives of government economic policy Flashcards
What are the 6 macroeconomic objectives?
Economic Growth Unemployment Inflation Balance of Payments Balancing the budget Distribution of income
What does economic growth measure?
rate of change of a country’s output
What does GDP measure?
calculates the sum of a country’s output over 1 year
What does unemployment represent?
Waste of resources
Why is Economic Growth an Objective?/What are the benefits of economic growth? (8)
Key benefits include:
Job creation
Rising incomes
Improved standards of living
Improved international competitiveness of the UK economy
Multiplier and accelerator benefits
Improved confidence of: consumers to spend and businesses to invest
Lower government spending on job seekers allowance and associated benefits
Tax revenues are likely to increase allowing the government to re-invest in infrastructure or spend on public services
What are the benefits of low unemployment? (8)
Higher consumption and aggregate demand
Higher incomes
Improved standards of living
Higher tax revenue for government
Lower government spending on unemployment related welfare
Improved productivity of UK economy
Reduced poverty (absolute and relative)
Social benefits (reduced crime, improved wellbeing)
Why is full employment unachieveable?
It is often assumed that full employment is not an achievable target as there will always be people moving between jobs or seeking work post education, so low unemployment becomes the default target. Although precisely what defines “low” is a matter of political debate.
What is inflation?
rate of change of average prices in an economy
Why is inflation important?
Inflation is important because it affects the value of £s in your pocket, workers‘ wage demands and consumer confidence.
High, or rising inflation, damages the real value of money and erodes spending power.
What is the government target for inflation?
2% +/- 1
What is balance of payments?
A measure of the UK’s record of economic activities with other countries
If the balance of budgets is in Surplus does this mean imports or exports are higher?
If Exports > Imports = Surplus
If the balance of budgets is in deficit does this mean imports or exports are higher?
If Imports > Exports = Deficit
What is balance of budget?
The government would like the value of government expenditure and the value of taxation to be the same as each other so that the government’s budget is balanced
What is distribution of income?
The distribution of income is how evenly incomes are shared between individuals and households across the economy
