CH37 Possible macroeconomic objectives Flashcards
what are the macroeconomic objectives of a government?
-high economic growth
-low unemployment
-low and stable inflation
-a balance of payments equilibrium on current account
apart for the main 4, what might macroeconomic objectives also include?
they might also include limiting fiscal deficits and might include objectives about income inequality
for low and middle income countries like China, Uganda or Brazil, what annual growth rates are possible for them to achieve? and what about for high income countries like the UK, the USA or Germany?
-it may be possible to reach annual growth rates of up to 10percent or even more.
-for high income countries an annual growth rate of 2.5 percent might be possible.
how can high rates of growth in low and middle income countries be achieved?
they can be achieved, for example by moving large numbers of workers from low-productivity agriculture to higher-productivity manufacturing.
-using modern technology can also significantly increase output per worker
why is it harder for high income countries to reach higher annual growth rates?
this is because they have already been through an industrialisation process and are at the forefront of technological developments.
-moreover, a number of high income countries, including Japan and Italy, face a rapidly ageing population, where the number of workers in the economy is falling. Achieving even a 2.5 percent growth rate is now seen as challenging in these circumstances
what would governments like to see in terms of employment?
govs would like to see unemployment as low as possible without there being inflationary pressure in the economy.
why is it impossible to have zero unemployment in a market economy?
-because there is always frictional or seasonal unemployment.
why are govs keen on higher employment?
this is because higher employment should increase tax revenues and reduce welfare benefits to the unemployed and those on low incomes.
what is the most common inflation target?
2 percent
-this is low but positive inflation
why do govs want to avoid deflation?
because deflation is seen as being linked to recession and low or negative economic growth
what are economies where the current account is persistently in surplus seen as?
they are seen as ‘strong’ economies. Whilst those running persistent deficits are seen to be ‘struggling’ or ‘weak’ economies.
-however, the reality is far more complex than this. Countries can run persistent surpluses, for example, and have low economic growth rates. Other countries can run persistent deficits and grow very fast over time without significant economic problems.
what do environmentalists tend to be against?
they tend to be anti-growth, arguing that any increased economic activity will damage the planet
