Macroeconomic Objectives

Question 1

Who are the key players in the economy?

Answer 1

Government
Industry
Consumers
Central bank
Civil society

Question 2

How does the government affect the economy?

Answer 2

Set rules that economic agents must follow

Can produce goods/services

Can support businesses

Question 3

What do industries in the economy?

Answer 3

Produce goods and services
Increase the economy
Provide jobs

Question 4

What do consumers do?

Answer 4

Buy goods and services

Question 5

What does the central bank do?

Answer 5

Set interest rates

Question 6

What is civil society?

Answer 6

Groups that aren’t part of industry/business (trade unions, charities)

Question 7

What does civil society do?

Answer 7

Have roles in economy - strikes for wages…

Question 8

What are the 4 ways of financing business?

Answer 8

Retained profit
Borrowing
Issuing shares
Issuing bonds

Question 9

What is retained profit and how does it finance business?

Answer 9

A part of the profit that can reward shareholders and fund investment

Question 10

What is borrowing?

Answer 10

When a firm borrows money from a bank to fund day to day operations or investment

Question 11

What are shares?

Answer 11

Financial asset which gives one part ownership of a company
More shares = more control of company

Question 12

Where are shares issued?

Answer 12

Primary markets

Question 13

Where can shares be bought from investors!

Answer 13

Secondary markets

Question 14

Explain the process of a bond.

Answer 14

Company issues bond to raise money
Investors purchase it and get regular interest payment until maturity date
Investors receive cash in fill when the maturity date arrives

Question 15

What are the key issues for the government and economy?

Answer 15

Economic growth
Employment
Inflation
Trade

Question 16

Why is high inflation bad?

Answer 16

Lowers standard of living

Question 17

What does economic growth mean?

Answer 17

Higher GDP

Question 18

What are the 7 Macroeconomic objectives?

Answer 18

Economic growth
Employment
Inflation
Balance of payments
Government budgets
Environment
Income distribution

Question 19

Why do underdeveloped countries have a higher economic growth rate?

Answer 19

Look at leading countries and follow
Often have more resources
Can improve many aspects of their economy

Question 20

Why do high income countries have low economic growth?

Answer 20

Already industrialised - not much they can do to improve their economy

Question 21

Why is it impossible to have 0 unemployment?

Answer 21

Frictional and seasonal unemployment - people finding jobs

Question 22

What is considered a good unemployment rate?

Answer 22

5%

Question 23

Why is higher employment good?

Answer 23

Higher tax revenues
Reduced welfare benefits

Question 24

What is a good inflation rate?

Answer 24

1-3%

Question 25

What is the balance of payments on current account?

Answer 25

Imports and exports (net)

Question 26

Why are large deficits bad (in terms of balance of payments)?

Answer 26

Can cause sudden fall in GDP

Question 27

Why is high fiscal debt bad for government budgets?

Answer 27

Government will have to borrow lots of money with interest on it

Question 28

Why would someone say to cut fiscal debt slower?

Answer 28

Allows for faster economic growth
Quicker rebound in tax revenues
Fall in welfare payments

Question 29

What do environmentalists say about the economy?

Answer 29

Economic activity damages the planet

Question 30

How can a better economy improve the environment?

Answer 30

Better output = better tech = economies clean up environment and reduce pollution

Question 31

Why is unequal income distribution good?

Answer 31

More incentives to work and take economic risks
Increases economic growth rate - raises income for everyone

Question 32

Why might unequal income distribution be bad?

Answer 32

Everyone should have a certain standard of living