A2 2 Macroeconomic Framework Flashcards
objectives of macroeconomic framework
increase level of economic growth within the UK economy
increase level of sustainable development
low levels of inflation
low levels of unemployment
low balance of payment deficits
advanatges of command economy
the welfare of all citizens is the primary goal of the economic system
wasteful competition is avoided
wages are controlled by the state- there is no industrial unrest
greater emphasis on the quality of life- health, education, poverty
free health care, education
disadvantages of command economy
no freedom of choice for producers or consumers
lack of incentives for workers- results in low level of morale and efficiency
managers also not motivated
the systen is too rigid to adjust when changes occur- can result in shortages
advantages of free economy
no government restrictions are more oppourtunity for the individuals- therefore more potential for private business
individual ownership of property and techniques of production is evident
people get the right to participate more within the business structure
disadvantages of free market economy
lack of governmental control, there are issues of corruption and bribery
the control of the state can move about in few hands and economy can move towards monoploy
income gaps increase
advantages of mixed economy
most business can be left to private firms. Private firms tend to be more effiecient than government controlled firms because they have a profit incentive to cut costs and be innovative
can reduce the amount of government control prevalent in a command economy
can enable some government regulation in areas where there is market failure- e.g. prevent merger, taxidation and regulation of goods and also public goods education/health care
can create greater equality and provide a safety net to prevent people living in absolute poverty, at the same time people enjoy the financial reward of hard work and entrepreneurship
government can pursue policies to provide marco-economic stability e.g. expansionary fiscal policy in time of recession
disadvantages of mixed economy
can be difficult to know how much governments should intervene e.g. discretionary fiscal policy, where the government decides to cute rates of VAT- lead to government borrowing in bank of ireland
criticised or allowing too much control by market forces, rather than the government- leads to inequality and ineffecticient allocation of resources, this means needs are met
criicised for allowing too much government intervention. Some argue that governments make very poor managers of the eonomy, invariably being influenced by political and short term factors
Why are Social Enterprises important?
they have a social, community or ethical purpose but use a market-based business model. they provide goods and services but not for personal profit- can be financially solid-sustaining
helps the economy grow by creating jobs and increasing the amount of wages and salaries in the economy
the offer on-the-job training to people who lack skills. This helps the unemployed to come back into labour pool and open up further job opportunities- also provide jobs for those with disabilities
can improve quality of life in the community
what is the order the Business Cycle usually runs?
Boom
Recession
Slump
Recovery
Boom phase
its characterised by optimistic levels of consumer and business confidence
business are profitable and feel confident about future sales
consumer spending tends to be high and positive economic growth
unemployment tends to be low, level of inflation
When does are recession occur?
a recession occurs when a National Income has fallen for two successive quaters
What happens during a recession?
leads to job loss and plant closure, may have to cut prices of products- lead to overtime and less use of additional temporary staff
some are vulnerable to GDP- e.g. luxuries will be cut back. These business are called cyclical business as their sales will follow the sale pattern as GDP- they are income elastic because they are not sensitive to income changes
consumer durables are generally income elastic whilst necessities and non durables are usually income inelastic
income elasticity of demand
is how much demand for products is influenced by changes in income
importance of business confidence
confidence in the future is important element in business decision-making: espically about investment
firms will only invest if they are confident about future demand for their products
business confidence can be a self fufilling prophecy
an optimistic view of the future leads to investment in equipment and in stoc. The rise in aggregate demand brings about a boom
how can firm use business cycle to its advantage?
Rising levels of GDP bring more sales for most business has to be ready to take advanatge of any rise in income and spending
if in recovery phase, business ensures it has sufficient capacity to meet future edmands- e.g. install new technology/ extend location
so it can take the upswing of growth of GDP and increase sales and profits
