book 1 - objectives of gov economic policy Flashcards
a policy ________ is the _____ or goals that the _______ wants to _________.
a policy objective is the targets or goals that the government wants to achieve.
policy ___________ are the ________ the government uses to try and achieve its ___________.
policy instruments are the tools that the government uses to try and achieve its objectives.
what are the main 4 economic objectives?
1) economic growth
2) price stability (low & stable inflation)
3) full employment
4) satisfactory balance of payments
short run economic growth is the growth of real _____ resulting from using _______ resources including the factors of ________ . (ppf1 to ppf____)
short run economic growth is the growth of real output resulting from using idle resources including the factors of production. (PPF1 to PPF2)
price stability is when ______ consumer prices for goods and services are ________ over time.
price stability is when average consumer prices for goods and services are constant over time.
the government wants unemployment to be ________ or less.
the government wants unemployment to be 3% or less.
balance of ______ is a _________ of all __________flows in and out of a __________ in a period of ______.
balance of payments is a record of all currency flows in and out of a country in a period of time.
current _________ is all ________ flows in and out of a _________ in payment for _______ and _________.
current account is all currency flows in and out of a country in payment for imports and exports.
________ GDP is the measure of all goods & services produced in economy adjusted for inflation.
real GDP is the measure of all goods & services produced in economy adjusted for inflation.
________ GDP measured at current market prices, not adjusted for inflation.
nominal GDP measured at current market prices, not adjusted for inflation.
________ run economic ______ is the growth of _____ output from using ______ resources and a _________ along the ppf.
short run economic growth is the growth of real output from using idle resourcesand a movement along the ppf.
_______ run economic growth is an ___________ in the economy’s ________ level of _______ and an __________ shift in the ppf.
long run economic growth is an increase in the economy’s potential level of output and an outward shift in the ppf.
a balance of payment ______ means a government must borrow money from another source to pay for its imports.
a balance of payment deficit means a government must borrow money from another source to pay for its imports.
if the value of exports exceed value of imports there is a BOP _______.
if the value of exports exceeds the value of imports there is a BOP surplus.
if the value of imports exceed value of exports there is a BOP _______.
if the value of imports exceed value of exports there is a BOP deficit.
what are two factors a high inflation rate can result in?
- lower real wages
- reduced purchasing power
what is the accelerator effect?
when a given change in demand for consumer good will cause a bigger change in demand for capital goods (e.g machinery)
what is the multiplier?
when an initial injection into the circular flow of income causes a bigger final increase in GDP/real national income
what is the negative multiplier effect?
occurs when there is an initial withdrawal of spending from the economy leads to a knock on effect and bigger fall in real GDP.
what is a demand side shock?
anything positive or negative that causes AD to change.
what is the AD calculation?
AD = C + I + G + ( X - M )
what are injections into the circular flow of income?
investment (I)
gov spending (G)
exports (X)
what are leakages into the circular flow of income?
imports (M)
saving (S)
taxes (T)
what is the formal equation from the multiplier?
1/ 1 - MPC
what is a shadow economy?
illegal activities that are not formally recorded
index calculation
new value/base year x 100
