Macro objectives Flashcards
what are the macro economic objectives?
(5)
- growth
- unemployment
- inflation
- trade
- distribution of income
what is the objective when it comes to growth? (4)
- growth to be strong, sustained and sustainable
- growth is a measure of income and living standards
- we want these to be high, continuous over time
- e.g. growth without excessive inflationary pressures, and excessive environmental damage
what is the objective when it comes to unemployment?
- unemployment to be low, and employment to be a high
- at full employment
what is the objective when it comes to inflation?
- low and stable (specifically 2% for UK)
- high inflation, hyper inflation and deflation can ruin an economy
what is the objective when it comes to trade
- balanced trade
- balance between the value of Exports of goods and services, and the value of imports of goods and services
- avoid trade deficits and surpluses
what’s the objective when it comes to distribution of income)
- fair, however this is normative
what does TIGERS stand for?
Trade
Inflation
Growth
Employment
Redistribution of income
Stability - objectives getting met at the same time
what are the non core objectives (3)
-sound government finances ( economy can pay its way in the future
- environmental sustainability
- productivity growth ( output per worker per hour )
what conflicts are there between macro objectives? (5)
- unemployment vs inflation
- growth vs environment
- growth vs equality
- unemployment vs equality
- satisfactory current account vs growth and unemployment
explain the conflict between unemployment and inflation
(2)
- if the government perused demand side policies to reduce unemployment we would see a fall in unemployment as well as a rise in inflation
- also works in reverse, with deflationary fiscal policy.
-if we reduce AD ( higher interest rates ) we get lower inflation, but we may also cause rising unemployment and lower real GDP
what other trade offs are there between unemployment and inflation
- demand side policies, resulting in higher AD could cause a bigger current account deficit because of higher import spending
- higher inflation reduces the competitiveness of exports
- expansionary fiscal policy ( higher gov spending and lower tax) will lead to a bigger budget deficit
explain the conflict of growth vs environment (2)
-higher economic growth may cause environmental problems
- for example, the overuse of scarce limited resources acts as a constraint on future living standards
explain the conflict of growth vs equality
-lower income tax and corporation tax may provide a boost to growth
- but may also increase inequality because high earners benefit most from tax cuts
explain the conflict
of low unemployment and equality
-cutting down benefits may provide an incentive for the employed to get a job
- but it may cause increased inequality
explain the conflict between a reduced current account deficit (balance of payments) and economic growth
- policies to reduce a current account deficit (deflationary fiscal policy)
- may cause lower economic growth
- and higher unemployment
