Macroeconomic Objectives Flashcards
Who are the key players in the economy?
Government
Industry
Consumers
Central bank
Civil society
How does the government affect the economy?
Set rules that economic agents must follow
Can produce goods/services
Can support businesses
What do industries in the economy?
Produce goods and services
Increase the economy
Provide jobs
What do consumers do?
Buy goods and services
What does the central bank do?
Set interest rates
What is civil society?
Groups that aren’t part of industry/business (trade unions, charities)
What does civil society do?
Have roles in economy - strikes for wages…
What are the 4 ways of financing business?
Retained profit
Borrowing
Issuing shares
Issuing bonds
What is retained profit and how does it finance business?
A part of the profit that can reward shareholders and fund investment
What is borrowing?
When a firm borrows money from a bank to fund day to day operations or investment
What are shares?
Financial asset which gives one part ownership of a company
More shares = more control of company
Where are shares issued?
Primary markets
Where can shares be bought from investors!
Secondary markets
Explain the process of a bond.
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
What are the key issues for the government and economy?
Economic growth
Employment
Inflation
Trade
Why is high inflation bad?
Lowers standard of living
What does economic growth mean?
Higher GDP
What are the 7 Macroeconomic objectives?
Economic growth
Employment
Inflation
Balance of payments
Government budgets
Environment
Income distribution
Why do underdeveloped countries have a higher economic growth rate?
Look at leading countries and follow
Often have more resources
Can improve many aspects of their economy
Why do high income countries have low economic growth?
Already industrialised - not much they can do to improve their economy
Why is it impossible to have 0 unemployment?
Frictional and seasonal unemployment - people finding jobs
What is considered a good unemployment rate?
5%
Why is higher employment good?
Higher tax revenues
Reduced welfare benefits
What is a good inflation rate?
1-3%
What is the balance of payments on current account?
Imports and exports (net)
Why are large deficits bad (in terms of balance of payments)?
Can cause sudden fall in GDP
Why is high fiscal debt bad for government budgets?
Government will have to borrow lots of money with interest on it
Why would someone say to cut fiscal debt slower?
Allows for faster economic growth
Quicker rebound in tax revenues
Fall in welfare payments
What do environmentalists say about the economy?
Economic activity damages the planet
How can a better economy improve the environment?
Better output = better tech = economies clean up environment and reduce pollution
Why is unequal income distribution good?
More incentives to work and take economic risks
Increases economic growth rate - raises income for everyone
Why might unequal income distribution be bad?
Everyone should have a certain standard of living
