Macroeconomic objectives Flashcards
What are the four main macroeconomic objectives
Sustainable Economic growth
Low and stable inflation
Low unemployment
Balance of payment
What are the three other macro objectives
Greater income equality
Protection of the environment
Balanced government budget
Limitation of monetary policies
depends on consumer/firm confidence
depends if banks pass on central banks I.R to consumers
depends if banks are willing to loan
What are fiscal policies used for?
They’re automatic stabilisers used to dampen the effects of a fluctuating trade cycle.
What are direct taxes
Taxes on income that go directly to the government e.g income tax, corporation tax, inheritence tax
What are indirect taxes?
Taxes on expenditure e.g VAT
Limitation of fiscal policies
Must work alongside monetary policies
There is a time lag in the effects
Increase government debt
May not stimulate AD due to high I.R
Gov have imperfect information
define supply side polcies
Aim to improve the long run productive potential of an economy
Difference between market led policies and interventionist policies
Market-led: rely on supply and demand to fix imbalances limiting the influence of gov intervention
Interventionist: relies on gov intervention
Market led policies examples
increase incentive
promote competition
reform labour market by removing NMW and limiting TU power
Interventionist policies examples
increase infrastructure
Improve skills and quality of labour
What policies will help improve structural and cyclical unemployment
Structural - supply side policies
Cyclical - demand side policies
What is a budget deficit
When government spending is higher than government revenue
What are the cons of having a budget deficit, especially towards economic growth
- should be used during the trade cycle when there is recession, must use automatic stabilisers
- depends if there are people to buy the bonds of debts if they’re confident in the economy (low risk)
- depends on the type of spending (capital is necessary for sustainable growth)
- increase
What are the three types of spending
Transfer spending - spending directly from government to households (UCS and Pensions)
Capital spending
Current spending
What are fiscal policies?
Policies used to change AD via gov spending, tax revenue and gov borrowing
What is a direct tax
A tax paid directly to the government
What are the UK’s highest tax revenue
(25% or revenue) Income tax, national insurance, VAT and corporation tax
Define supply side policies
Aim to increase productive potential of the economy by improving quality and quantity of F.o.P
Example of supply side policies
a reduction in benefits and tax
What supply side policies promote competition
Privatisation or deregulation
presence of CMA
