Chapter 25: Macroeconomic aims of government

Question 1

Economic growth

Answer 1

• Usually refers to an increase in output in the short run which is actual economic growth
• Growth in the capacity of the economy to produce goods and services which occurs due to an increase in quality or quantity of factors of production known as potential economic growth
• Producing more goods and services raises people’s standard of living
• Help government achieve other aims (employment, trade position, poverty, upward pressure on price level avoided)

Question 2

Low unemployment

Answer 2

• Unemployment is a waste of resources
• Those unemployed suffer a number of disadvantages and tax revenue may have to be spent to support the unemployed

Question 3

Price stability

Answer 3

• Price level in the economy is not changing significantly
• Amount households are paying for products realtively stable
• Ensures greater economic certainty and prevents the country’s product from losing international competitiveness
• Firsm, households, and workers have an idea about future prices leading to confidence
• Firms will not raise prices because they expect costs to be higher
• Households will not bring forawrd purchases for fear that items will be more expensive in the future
• WOrkers will not press for wage increases just to maintain their real disposable income

Question 4

Balance of payments stability

Answer 4

• Record of revenue recieved from selling exports and its expenditure on imports
• Governments want the value of their exports to equal the value of their imports
• If expenditure on imports exceeds revenue from exports for a long time, the country will go into debt
• If export revenue is greater than improt expenditure, the imnhabitants of the coutnry will not be enjoying as many products as possible

Question 5

Redistribution of income

Answer 5

• The more money someone has, the less they tend to appreciate each unit
• Redistribution by taxing and spending
• Money taxed is spent directly on the poor or other forms such as education and health
• Inequalit yof income and wealth amy mean some are expierincing poverty