Intro to Current Government Macroeconomic Objectives Flashcards
What is Austerity?
Difficult economic conditions created by government measures to reduce public expenditures
What does Fiscal mean?
Relating to government revenue (especially taxes)
What is the FTSE 100?
An index composed of 100 largest companies listed on the London Stock exchange
Seen as good indication of performance of major companies in UK
What is GDP?
Total value of all output in economy over period of time
What is Real GDP?
Nominal GDP adjust for inflation, valued at constant prices
Used to measure economic growth because it shows quantity of goods and services
What is Nominal GDP?
Monetary value of all goods and services produced within the UK
What is economic growth?
Measure of increase in value of goods and services produced by economy over period over time
How is economic growth measured?
Percentage rate of increase in Real GDP
How often is economic growth measured?
Measured on quarterly basis
What is inflation?
General increase in prices
Fall in purchasing value of money
Why is Stable Low Inflation desirable?
Value of money more stable
People more likely to continue spending - helps keep economy stable
Give certainty for firms and consumers
Why is Inflation above the target of 2% at present?
Brexit = value of pound fallen
Everything we import is more expensive so prices go up to compensate
Oil prices have been rising
Why don’t we set a 0% inflation target in UK?
Because there is chance of missing target of 0% and ending up with deflation which causes lack of demand and debts grow
People will wait and not want to spend on large purchases at present because they will wait for prices to go lower if they know deflation is happening
What is an Index number?
A way of comparing economic data over time or even different countries
Enables you to see what has happened to data with reference to specific year in past or specific country by setting some data as base year
What value is the Base number always?
100
Is the chosen point where you compare the change
What is Disinflation?
A fall in the RATE of inflation meaning rate of increase is lower but prices are still rising. Doesn’t mean falling prices
What is Deflation?
Fall in average level of prices
What is the Consumer Price Index (CPI)?
Measure of price level used in all EU countries and by Bank of England to measure inflation against it’s target
How is Inflation rate calculated?
Percentage change in CPI which is calculated relative to base year set equal to 100
What is Balance of Trade?
Value of Exports - Value of Imports
What is Balance of Payments?
Flow of money into and out of UK
When does the Balance of Trade deficit arise?
When the value of imports is greater than the value of exports
When does the Balance of Trade surplus arise?
When the value of exports is greater than the value of imports
What is the Balance of Trade like for UK?
Trade deficit in goods balance (import more goods than export)
Trade surplus in services balance (export more services than import)
Overall = deficit
What is the national debt?
Total stock of debt yet to be repaid by government
What is the government budget?
Difference between annual tax revenue and government spending
What are the potential problems with not reducing the deficit?
Sharp rise in interest rates
Loss of jobs
Businesses destroyed
What are ways of decreasing the budget deficit?
Tax more
Spend less
Grow the economy (and then you won’t have to do either of the above)
What is Income Distribution?
Pattern of Incomes in Economy
How is Income Distribution measured?
By looking at percentage of national income earned by different groups within population
What are Quintiles?
When data is put into order by size but split into 5 equal groupings
What are Deciles?
When data is put into order by size but split into 10 equal groupings
What are Supply-side policies?
Government policies designed to promote market forces in order to increase economic growth
What is the aim of supply side policies?
Shift PPF for economy outwards
Increase productivity/competition in product or labour markets
What are the two types of Demand side policies?
Fiscal Policy
Monetary Policy
What is Fiscal Policy?
Manipulation of government spending and taxation to affect total demand in economy
What is Monetary Policy?
Use of changes in base rate of interest and money supply to influence the rate of growth of total demand and rate of price inflation
What are the current government macroeconomic objectives?
Economic Growth Inflation Unemployment Balance of Payments Government Borrowing Income Equality Protection of the Environment
How do you calculate Real GDP in any year (eg. 2016) in 2013 figures?
Real Value (2016) = (Nominal Value in 2016 / Price Index (2016)) x 100 (Price Index (2013))
Who are economically inactive people?
Jobless people who haven’t been looking for work in the last 4 weeks and are able to start work within the next 2 weeks
Who are people in employment?
All people in paid work including those working part time
Who are unemployed people?
People who have been looking for work within the last four weeks and are able to start work in the next two weeks
What is the current account of the balance of payments?
Record of country’s trade of exports, imports, investment income and current transfers with the rest of the world
