Macroeconomic Objectives Flashcards
What are the 7 possible macroeconomic objectives?
1) Economic growth.
2) Low unemployment.
3) Low and stable rate of inflation.
4) An equilibrium on the balance of payments on the current account.
5) A balanced government budget.
6) Protection of the environment.
7) Greater income equality.
What is the difference between developed and developing countries’ targets for economic growth?
A developed country, such as the USA or Germany, may aim for a growth rate of 2.5% GDP annually. In contrast, a developing nation, such as Brazil or Zambia, may achieve a rate of 10% GDP annually, as there is greater potential to develop underutilised factors of production.
Why is a 0% unemployment rate impossible?
Because of frictional and seasonal factors.
Why do governments want a low rate of unemployment (2)?
Low unemployment reduces poverty and welfare benefits, while increasing tax revenue through income tax, supporting investment in areas like healthcare and education.
What is the danger of reaching full employment?
High inflationary pressure.
What is the danger of high economic growth?
High inflationary pressure.
Why do governments aim for a low and steady rate of inflation (3)?
1) Most developed nations aim for an inflation target of 2%, as most economies can cope with that level of price rise, with consumers and businesses being able to keep up.
2) High rates of inflation can erode savings and make a country internationally uncompetitive.
3) Deflation can cause a recession and negative economic growth.
Why do governments aim for a balance of payments equilibrium on the current account?
Whilst in the short term, it is possible to maintain economic growth whilst running a trade deficit. In the long run, however, running a deficit can be dangerous if borrowers are unable to repay debt.
Since when has the UK been in a current account deficit?
Since 1984.
What are the factors leading to a trade deficit (4)?
1) High levels of imports.
2) A failure to compete with cheap foreign goods.
3) A sharp rise in the value of the country’s currency.
4) A fall in exports, e.g. due to a rise in protectionism.
What are the factors leading to a trade surplus (3)?
1) A reduction in imports, e.g. due to a decline in AD.
2) A fall in the value of a country’s currency.
3) An increase in exports, e.g. due to a recession, whereby domestic businesses will focus on the international market.
What is the fiscal budget?
The balance between tax revenue and spending.
Why do governments aim for a balanced government budget?
Running a large deficit can boost economic growth in the short term, however in the long term it is unsustainable, as interest has to be paid back on the debt. A large surplus is detrimental to AD, as government spending falls.
What are the drawbacks if governments neglect the protection of environments (5)?
1) The depletion of natural resources.
2) The destruction of wildlife and habitats.
3) Pollution in the seas.
4) Poorer air quality, especially in cities.
5) Global warming.
What are 4 policies to support income equality?
1) The minimum wage.
2) Maximum prices.
3) Family benefits.
4) Tax relief for low income earners.
