Macro-economic Objectives

Question 1

Macro economic objectives (7)

Answer 1

1) Real economic growth per capita (per person)
2) Low inflation of 2%.
3) Low unemployment/full employment
4) Stable balance current accounts
5) Reduce the national debt
6) Reduce inequality
7) Reduce environmental damage/improve environment

Question 2

1) Real economic growth per capita (per person)

Macro economic objective

Answer 2

If the real gdp per capita is rising households combine more goods and services increasing living standards.

Economic growth means GDP has risen.

Question 3

Gross domestic product (GDP)

Answer 3

And value of all finished goods and services produced in economy over a period of time of time.

Question 4

What does Real in inflation terms mean

Answer 4

Inflation has been taken into account.

Question 5

2) Low inflation of 2%

Answer 5

High inflation (more than 3%) is undesirable as it means cost of living is rising rapidly. It also leads to exports becoming less competitive.

Living standards full if nominal wage increases don’t keep up.

Question 6

Deflation

Answer 6

Is price levels falling.
Temporary deflation can cause permanent deflation called deflationary spiral.

Question 7

Explain the deflationary spiral

Answer 7

If People expect price levels to fall in 6 Months time they will postpone essential purchases till then (like new car) n if a lot of people do that and postpone purchases firms will have 2 lower prices n sell excess stock causing further falls in price levels.
Firms will then reduce output and let go of underutilised workers causing unemployment 2 rise and national output to fall.
2 avoid this BoE has inflation target of 2%.

Question 8

3) Low unemployment/full employment

Answer 8

2 b considered unemployed have to meet 2 points:
1) Be without a job n has found one and waiting to start in 2 weeks.
2) Be without a job but has actively looked 4 weeks and is capable n ready to start in 2 weeks.

Question 9

Why is full employment good (6)

Answer 9

1) More people working = Higher national output.
2) More households have source of income.
3) Gov spend less on out-of-work-benefits
4) Gov receive more tax revenue in form of income tax.
5) Workers maintain/ develop skills.
6) Reduces crime/ antisocial behaviour

Question 10

4) Stable balanced current accounts

Answer 10

Balance of payment has 2 components:
1) Current account n 2) Capital financial account.

Gov want current account to balance so value of exports = Value of imports. If value of exports is greater than value of imports than country will have fewer goods and services to consume reducing living standards.
Gov dnt want value of imports to be less than value of exports cuz low exports lead to profits of rims being low = high unemployment.

Question 11

5) Reduce the National Debt (Gov Debt)

Answer 11

If gov debt is £40bn but GDP is £100bn each yr then debt is 40% of GDP.
Gov Debt has to be payed back in 1 day ad interest is payed in the mean time.

Question 12

6) Reduce Inequality

Answer 12

gross inequality leads to social tension which reduces welfare in society.

By decreasing inequality wellbeing goes up crime falls and higher % of people can participate in everyday society.

Question 13

7) Reduce environmental damage/ improve environment

Answer 13

Welfare of society depends on environment lived in.
Toxic air, contaminated water, destruction of nature, can lead to physical and mental health falling.

Sustainability.

Question 14

National Income = National expenditure = National Output

Answer 14

A persons spending becomes anothers income (expenditure = income).

To meet demand goods and services have to be produced.
More goods and/ services worker produces the greater the income. (Output = income)

Question 15

What is an export n import

Answer 15

On import is a g/s brought in from abroad.
An Export is a g/s given away 2 aother country.

Question 16

Circular flow of income

Answer 16

Shows how income flows between households and firms.
Households buy g/s which provides income for firms n firms provide income for households through individuals renting out their land, capital, labour and enterprise to firms.

Question 17

3 Leakages of income

Answer 17

1) Imports - Households spending on imported g/s instead of domestic g/s diverts income away from domestic firms (firms encorporated in country xchange is located).
2) Savings - Saving income decreases g/s brought reducing income of firms.
3) Taxes - If income of households are taxed highly it reduces income used 2 buy goods and services reducing income of firms.

Question 18

3 injections of income

Answer 18

1) Exports - more demand from foreign buyers so more exports sold = additional income to domestic firms
2) Investments - more demand from fellow firms so selling g/s to them (investment) = additional income to domestic firms.
3) Gov spending - gov buying g/s from domestic firms so selling to gov = additional income for domestic firms.

Question 19

What’s an injection of income

Answer 19

The introduction of additional income into the circular flow of income.
Gov spending (G), investment (I), sales of exports (X)

Question 20

What’s a leakage of income

Answer 20

The withdrawal of income from the circular flow.
Savings (S), Taxation (T), £ on imports (M).

Question 21

When GDP (value of national output) is stable what is the economy said to be?

Answer 21

In equilibrium n this means GDP eill remain constant over time. (stay the sme)

Question 22

GDP is in equilibrium (national output stays the sme) when

Answer 22

G + I + X = S +T+ M

Question 23

Economy will grow (national output increasing) when

Answer 23

G + I + X > S+ T+ M

Question 24

Economy will shrink (National output increasing) when

Answer 24

G + I + X < S +T+ M

Question 25

Limitations of using NOMINAL GDP to compare changes in standard of living over time

Answer 25

Nominal GDP increases doesn’t necessarily mean standard of living has increased as even tho national incomes have risen cost of living may also have risen diluting gains from rising income.

5% pay rise + 3% price level rise = 2% real income rise.

Question 26

Nominal income facts

Answer 26

• If nominal incomes rise quicker than price levels real incomes rise.
• If price levels rise quicker than nominal income then real income falls.
• If price levels and nominal incomes rise at the same rate then real income stays the same

Question 27

Nominal GDP meaning

Answer 27

GDP figures that have not been adjusted for inflation.

Question 28

Real GDP meaning

Answer 28

GDP figures that have been adjusted for inflation.

Question 29

Limitation of using real GDP to compare standard of living over time

Answer 29

Cumulative income (real GDP) could even double but it doesn’t mean standard of living has actually doubled as if the population has increased then it could dilute some of the gains of higher GDP as higher 100% GDP figure is spread over larger population.