Government Economic Policy Objectives Flashcards
What are the four main macroeconomic objectives governments try to achieve?
- Strong economic growth
- Keeping inflation low
- Reducing unemployment
- Equilibrium in balance of payments
What is economic growth?
An increase in the productive potential of an economy
What are the different stages of the economic cycle?
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
What is the trend rate of growth?
The average rate of economic growth over a period of both economic booms and slumps
What is an output gap?
The difference between the level of actual output and trend output
What are some benefits of economic growth?
- Decrease unemployment
- Higher wages for employees
- Increased Investment
What are some costs of economic growth?
- Income inequality
- Deficit in the balance of payments
- Industrial expansion can lead to negative externalities
What is a demand side shock?
A domestic or global situation that causes aggregate demand to rise or fall
What is a supply side shock?
A domestic or global situation that causes aggregate supply to rise or fall
What is cyclical unemployment?
When the economy is an a recession, demand falls so unemployment rises
What is seasonal unemployment?
When the time of year effects the amount of employment. E.g. Christmas
What is structural unemployment?
When there is a mismatch in skills between individuals looking for work and the work that is being offered
What is frictional unemployment?
The unemployment that comes from workers moving from one job to another job
What is cost push inflation?
Inflation which is caused by the rising costs of inputs of production
What is demand pull inflation?
Inflation which is caused by excessive growth in aggregate demand
