Macroeconomic objectives

Question 1

What are the main macroeconomic objectives

Answer 1

Inflation, economic growth, Unemployment and balance of payments.

Question 2

The government wants inflation to be

Answer 2

low to ensure that prices are stable this influences investment and consumption

Question 3

What is demand pull inflation

Answer 3

Demand-pull inflation is when there is an increase in aggregate demand, and the supply remains the same or decreases and price increases

Question 4

What is cost push inflation

Answer 4

Cost-push inflation occurs when we experience rising prices due to higher costs of production and higher costs of raw materials so prices rise.

Question 5

The government wants unemployment to be

Answer 5

low so the economy can operate at full capacity and there is no output gap. Also have more employment AD will increase as consumption will increase as more people will have more money to spend.

Question 6

The government wants what type of economic growth

Answer 6

positive growth which is the eventual increase of GDP over time

Question 7

What is a slump period and a boom period

Answer 7

When economic growth is negative the economy goes into a slump period and when positive the economy goes into a boom period.

Question 8

How can GDP increase

Answer 8

GDP will increase when there are less withdrawals than injections into the economy. Also when there I better productivity

Question 9

Explain a slump period

Answer 9

In a slump there is a negative output gap which is where actual GDP is lower than trend rate, also slumps are associated with unemployment and low levels of inflation and in boom phases the opposite.

Question 10

What does the government want balance of payments to be

Answer 10

BALANCED between the current, capital and financial accounts

Question 11

What are the 3 accounts in balance of payments

Answer 11

Current, capital and finance

Question 12

What is the main account the government is most interested in

Answer 12

Current which holds the record for exports and imports

Question 13

What is a floating balance of payments

Answer 13

It is a balance of payments which are always balanced

Question 14

What is a deficit on the current account

Answer 14

A deficit on the current account is when imports are worth more than exports and a surplus is the other way around.

Question 15

What are the possible macro objective conflicts

Answer 15

Economic growth vs Inflation
Economic growth vs Current account balance of payments
Economic growth vs Budget deficit
Economic growth vs Environment
Unemployment vs inflation

Question 16

Why is there a conflict between economic growth and inflation

Answer 16

If there is rapid economic growth, it is more likely that inflationary pressures will increase.

Question 17

Why is there a conflict between economic growth and current account of balance of payments

Answer 17

When economic growth is led by consumer spending, it tends to cause a deficit in the current account. This is because as consumer spending rises, there will be a rise in import spending.

Question 18

Why is there a conflict between economic growth and the Budget deficit

Answer 18

A government may feel it needs to reduce the budget deficit. This will require higher taxes and lower spending. However, this tightening of fiscal policy will lead to a fall in AD and lead to lower economic growth.

Question 19

Why is there a conflict between economic growth and the environment

Answer 19

There can be a strong conflict between economic growth and environmental objectives. Higher GDP leads to higher levels of pollution and consumption of non-renewable resources.

Question 20

Why is there a conflict between Unemployment and inflation

Answer 20

In a period of high growth – jobs are created, causing unemployment to fall. But, as unemployment falls, it can put upward pressure on wages, leading to inflation.

Question 21

What do you need to do in unit 2 exam questions

Answer 21

Always include AO1 if there is a definition in the question

Always link your answer to the question when making points