Macro Flashcards
4 macroeconomic goals
Stable low inflation
Sustainable growth of GDP
High employment
Satisfactory current account on balance of payments - i.e. Avoid big current account deficit; UK imports more than export
Macroeconomics
Considers the economy as a whole
Studies relationships and connections between countries
E.g. How a slowdown in the Brazilian economy can affect UK business or
How change in exchange rate affect British firms exporting to countries around the world
Households
Receive incomes through wages and salaries from their jobs and from their investments and then buy the output of firms (this aka consumer spending)
Firms
Businesses hire land, labour and capital inputs when making products for which they pay wages and rent (income)
Firms receive payments from consumers and profitable businesses may invest a % of profits in new produced goods such as technology
Government
Collect taxes to fun spending in public services such as education, healthcare and defence
Government spending is given label G
International sector
UK imports from other countries and overseas businesses
Consumers buy UK products aka exports
International trade is important for the UK
Millions of jobs depend directly/indirectly on the UK remaining competitive in the overseas markets
What macroeconomics looks at
Success/ failure of government policies
Objectives
Goals of government policy
Instruments
Means by which aims might be achieved
Stable low inflation
Government’s inflation target is 2% for the consumer price index
Sustainable growth of GDP
Growth of real gross domestic product
Sustainable in keeping inflation low and reducing environmental impact of growth
Improvements in productivity
Designed to improve competitiveness and global trade performance
High employment
Government wants to achieve an increase in employment and eventually a situation where all those able and available can find meaningful work
Rise in living standards and fall in relative poverty
Cutting child poverty and reducing pensioner poverty
Sound government finances
Including control over state borrowing and the total national debt
Monetary policy
Changes to interest rates, supply of money and credit and changes to the value of exchange rate
Fiscal policy
Changes to government taxation, government spending and borrowing
Supply side policies
Designed to make markets work more efficiently
Macroeconomic stability
Occurs when there is low volatility in key indicators
E.g. jobs, economic growth, interest rates, investment and trade
All countries experience an economic cycle which tracks the fluctuations in rate of growth of a country’s GDP- some countries have a more volatile cycle than others
Macro stability is shown in particular by the volatility of a country’s economic cycle
Current VAT %
20%
Unemployment in UK (millions)
1.6
Current inflation rate
1.6%
Inflation
Growth in prices
E.g. On average prices may increase 5% during 2001
If prices increase by 5% it also means that money can buy 5% fewer goods than in the previous year
Therefore inflation leads to a fall in the buying power of money
Current interest rate
0.25%
Macroeconomic indicators
Consumer price index Inflation level GDP Unemployment figures Imports and exports The price of crude oil
Controlling inflation through quantitative easing
Bank of England is injecting money directly into economy to meet the inflation target
Economic growth
Measure of total output or income of an economy after adjusting for changes in the price level
Growth of real GDP is the percentage change in output often measured over a year
