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A - Level AQA Economics - Year 1 & 2 > Government Economic Policy Objectives > Flashcards

Government Economic Policy Objectives Flashcards

1
Q

What are the four main macroeconomic objectives governments try to achieve?

A
  • Strong economic growth
  • Keeping inflation low
  • Reducing unemployment
  • Equilibrium in balance of payments
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2
Q

What is economic growth?

A

An increase in the productive potential of an economy

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3
Q

What are the different stages of the economic cycle?

A

Boom- When the economy is growing quickly
Recession- When there is negative economic growth for at least 2 consecutive quarters
Recovery- When the economy begins to grow again

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4
Q

What is the trend rate of growth?

A

The average rate of economic growth over a period of both economic booms and slumps

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5
Q

What is an output gap?

A

The difference between the level of actual output and trend output

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6
Q

What are some benefits of economic growth?

A
  • Decrease unemployment
  • Higher wages for employees
  • Increased Investment
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7
Q

What are some costs of economic growth?

A
  • Income inequality
  • Deficit in the balance of payments
  • Industrial expansion can lead to negative externalities
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8
Q

What is a demand side shock?

A

A domestic or global situation that causes aggregate demand to rise or fall

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9
Q

What is a supply side shock?

A

A domestic or global situation that causes aggregate supply to rise or fall

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10
Q

What is cyclical unemployment?

A

When the economy is an a recession, demand falls so unemployment rises

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11
Q

What is seasonal unemployment?

A

When the time of year effects the amount of employment. E.g. Christmas

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12
Q

What is structural unemployment?

A

When there is a mismatch in skills between individuals looking for work and the work that is being offered

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13
Q

What is frictional unemployment?

A

The unemployment that comes from workers moving from one job to another job

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14
Q

What is cost push inflation?

A

Inflation which is caused by the rising costs of inputs of production

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15
Q

What is demand pull inflation?

A

Inflation which is caused by excessive growth in aggregate demand

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16
Q

What is the natural rate of unemployment?

A

The rate of unemployment when the labour market is in equilibrium

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17
Q

What does the short run Phillips curve show?

A

The trade off between unemployment and inflation

18
Q

What is Fisher’s equation of Exchange?

A

MV = PT
M = Money Supply
V = Speed at which money is spent
P = Price Level
T = Total transactions in an economy

19
Q

What are the causes of a current account deficit?

A
  • High levels of consumer spending
  • Struggles when competing internationally
  • External shocks
20
Q

What are the causes of a current account surplus?

A
  • When the economy is in a recession, domestic producers are struggling, so international trade is a better option
  • Low value of domestic currency, exports are cheap
  • High interest rates
21
Q

What are the consequences of a balance of payments deficit?

A
  • Could mean economy is uncompetitive
  • Wealthy people will import more, long term this will cause problems
  • Fall in the value of the currency
  • Increased unemployment
22
Q

What are the consequences of a balance of payments surplus?

A
  • Shows an economy is competitive
  • Can lead to stagnation over prolonged periods of time
  • Overreliance on exports
23
Q

How might the government try to correct a balance of payments deficit?

A
  • Supply side policies to reduce structural problems
  • Restrictions on imports
  • Fiscal or monetary policy to reduce spending in the economy
24
Q

How might the government try to correct a balance of payments surplus?

A

Try to raise the value of their currency, reducing exports and increasing imports

25
Q

What do the capital and financial accounts show?

A

Asset transfers

26
Q

What is included in the capital account?

A

Transfers of non-monetary and fixed assets

27
Q

What is involved in the financial account?

A

Movement of financial assets, such as:
- FDI
- Portfolio investment - investment in financial assets such as shares
- Financial derivatives - Contracts whose value is based on the value of an asset
- Reserve assets - Financial assets held by the Bank of England

28
Q

Where is income from the financial account recorded?

A

Current Account

29
Q

What is the relationship between the current account and the capital and financial accounts?

A

The current account should balance with the capital and financial accounts

30
Q

What are long term flows?

A

When things such as FDI is often made when a country gains comparative advantage in producing something, which happens over a long period of time

31
Q

What are short term flows?

A

Also called hot money, due to speculation and people trying to quickly make money, such as moving money from one currency to another to try and make a profit through change of exchange rates

32
Q

What do governments use short term policies for?

A

To correct sudden problems , such as major unemployment caused by a recession

33
Q

Where is the natural rate of unemployment?

A

When the labour market is in equilibrium, when labour demand is equal to labour supply

34
Q

How can cyclical unemployment be reduced during a recession?

A

Demand side policies

35
Q

How can the government reduce the natural rate of unemployment?

A

Supply side policies that make the labour market more flexible, and reduce frictional and structural unemployment

36
Q

What is flexibility of labour determined by?

A
  • Labour mobility
  • Wage flexibility
  • Flexibility of working arrangements
37
Q

How can labour flexibility be improved?

A

Scrapping NMW and limiting trade union power

38
Q

How can the government tackle frictional unemployment?

A
  • Income tax cuts will increase incentive to find work quicker and work longer hours
  • Increased information about jobs will help to find jobs quicker
  • Reduction of benefits
39
Q

How can structural unemployment be reduced?

A

By implementing policies that reduce occupational and geographical immobility

40
Q

How can the government tackle structural unemployment?

A
  • Investing in training schemes that help to improve skills
  • Giving subsidies to workers so that they can afford to move house to an area with more work available

A - Level AQA Economics - Year 1 & 2 (14 decks)

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