government macro objectives Flashcards
who are macro objectives set by?
they are goals set by the government aimed at improving the overall economic performance of a country as well as the quality of life of its citizen
what are the macro objectives ?
Equity in the distribution of income
economic growth
environmental protection
minimising unemployment
balancing the gov budget
stable balance payments on the current
how does the government aim to achieve these objectives?
the macro objectives ;
fiscal policy
monetary policy
supply side policy
exchange rate policy
what is economic growth?
an increase in national output measured by gdp
Target rate of uk is 2%
what are the positive impacts of economic growth ?
confidence
consumption
investment
lower unemployment
high incomes
living standards
better government budgets
what a does an increase in real gdp mean for the economy and employment?
An increase in real GDP is a sign that the economy is expanding and employment is increasing
what does recession mean?
2 consecutive quarters of negative economic growth
what’s the uk target inflation rate ?
inflation - a sustained increase in the average price level of goods / services in an economy
The UK has a target inflation rate of 2% using the Consumer Price Index (CPI)
what is consumer price index ?
A consumer price index is a price index, the price of a weighted average market basket of consumer goods and services purchased by households.
why is low late of inflation desirable ?
its a symptom of economic growth
what are the different causes of inflation?
cost push
demand pull
what policy would the gov respond with for cost push
supply side policies- aim to improve quantity and quality of the factors of production
what policy would the gov respond with for demand pull?
demand side policies - aim to improve AD in an economy
what is the target rate for unemployment in the uk ?
4 - 5 %
This is close to the full employment level of labour (YFE)
There will always be a level of frictional unemployment
This makes it impossible to achieve 100% employment
what is frictional unemployment ?
occurs when workers are transitioning between jobs
what is low levels pop unemployment signs of ?
Low levels of unemployment are a sign of a strongly performing economy and are inversely linked to real GDP growth
When real GDP increases, unemployment falls
When real GDP decreases, unemployment rises
what is the balance of payments for a country?
for a country is a record of all the financial transactions that occur between it and the rest of the world
what current account focus on?
Focuses mainly on the financial transactions related to exports and imports of goods and services
what does it mean when exports are greater than imports ?
If exports > imports, it will create a current account surplus
what happens when imports are greater than exports?
If imports > exports, it will create a current account deficit
what does the government budget show?
The Government Budget is presented annually and includes the forecasted revenue and expenditure
what does it mean when expenditure its greater than revenue?
If expenditure > revenue, there is a budget deficit
what are deficits financed through?
Any deficit has to be financed through public-sector borrowing
Any borrowing is added to the public sector debt(Government debt
what happens if uk governments debt becomes too high?
then lenders begin to lose confidence in the Government’s ability to repay the debt
The Government then has to raise the interest rate it offers to lenders, which makes borrowing more expensive
what does reducing the deficit mean?
Reducing the deficit can mean tough choices for the economy
E.g. Cutting public sector pay; raising taxes; reducing unemployment benefits; reducing spending on merit goods
what does the gov aims to ensure(environmental protection)?
ensure sustainable economic development and reduce adverse impacts on the environment
what are broader environmental aims ?
A focus on sustainability
The reduction of negative externalities of production
100% energy from renewable sources by 2035
what does equitable distribution ensure ?
ensures fairness and allows the same opportunities for everyone
The aim is not equality of distribution as it removes the incentive to work and study
what does high levels of income inequality cause ?
can create social unrest
how is income inequality measured ?
using Gini coefficient
0 = complete equality
1 = complete inequality
Most developed country have a gini target of 0.3 - 0.4
why is there a need for uk government to intervene ?
o intervene to maintain acceptable levels of income inequality.
how can governments redistribute income?
Governments can redistribute income
Through a progressive tax system
