Macroeconomic Objectives Flashcards
What is microeconomics?
The study of the economy on a small scale
What is macroeconomics?
The study of the economy world wide
What is a macroeconomic objective?
Aims that a government wants to achieve
Name 5 macroeconomic objectives
- Inflation
- Unemployment
- Economic growth
- Protect the environment
- Balance of payments
Describe the macroeconomic objective inflation
To have a stable inflation rate
Describe the macroeconomic objective unemployment
To keep unemployment levels low
How can inflation be prevented?
By putting caps on prices
Describe the macroeconomic objective economic growth
To ensure an increase in national income over time
Describe the macroeconomic objective protect the environment
To promote environmentally friendly activities
Describe the macroeconomic objective balance of payments
To ensure a positive balance of payments (more exports than imports)
How is balance of payments calculated?
Exports - imports
What is balance of payments recorded on?
The current account
What is a deficit?
Imports > exports
What does GDP stand for?
Gross Domestic Product
What is GDP?
It measure the total value of goods and services produced in an economy over a period of time
Measures economic growth
What does per capita mean?
For each person
Why is growth important? Name 3 reasons
- Improvements in living standards
- Attracts foreign investments
- Encourages domestic enterprise
How does growth improve living standards?
Incomes can rise and poverty can be reduced = increased income generates tax = the government can invest in public goods and services
Name 5 limitations of GDP
- Population changes
- Statistics errors
- Hidden economy
- GDP and living standards
- Inflation
Explain why inflation is a limitation of GDP?
Increases in prices are not taken into account when using GDP as measurement of economic growth. E.g. If an economy grows by 5% and the prices increase by 5%, the economy has not grown.
Explain why population changes is a limitation of GDP?
If population increases faster than growth = there’ll no be real increase in growth. Extra income is shared between more people.
Explain why is statistic errors a limitation of GDP?
Gathering data to calculate national income is huge task. Errors are coming e.g. Information can be entered inaccurately or left out
Explain why the hidden economy is a limitation of GDP?
Sometimes paid work goes unrecorded e.g. If a friend drives a family for £25, it will not be recorded
Explain why GDP and living standards are a limitation of GDP?
If GPD rises, it doesn’t mean living standards have also risen. Income distribution gap could be huge.
What is the economic cycle?
It shows the fluctuation of economic growth (through GDP) for an economy over a period of time
What is a boom?
- Peak of the economic cycle
- Where GDP is growing at its fastest
What is a downturn?
- When rate of economic growth (GDP) is slowing down
- Period after a boom
What is recession/depression?
- A decline in economic activity, when the GDP growth rate is negative
- Bottom of the economic cycle
What is recovery?
- Economic activity starts to increase
- When the economic cycle begins to rise
Draw a economic cycle
State how the following are affected during a boom:
- GDP
- Unemployment
- Inflation
- Economic growth
- Balance of payments
- Environmental standards
- GDP = increase
- Unemployment = decrease
- Inflation = increase (demand increases)
- Economic growth = increase
- Balance of payments = positive
- Environmental standards = decrease/poor
State how the following are affected during a downturn:
- GDP
- Unemployment
- Inflation
- Economic growth
- Balance of payments
- Environmental standards
- GDP = start to decrease
- Unemployment = start to increase
- Inflation = increase but slowly
- Economic decline (slowly)
- Balance of payments = slowly lean towards negative
- Environmental standards = may slightly increase
State how the following are affected during a recession:
- GDP
- Unemployment
- Inflation
- Economic growth
- Balance of payments
- Environmental standards
- GDP = decrease a lot
- Unemployment = rises sharply
- Inflation = remain the same or slightly decrease
- Economic decline will occur
- Balance of payments = negative
- Environmental standards = will increase
State how the following are affected during a recovery:
- GDP
- Unemployment
- Inflation
- Economic growth
- Balance of payments
- Environmental standards
- GDP = start to rise
- Unemployment = start to decrease
- Inflation = may begin to rise
- Economic growth = begin to increase
- Balance of payments = positive
- Environmental standards = decrease
What are the benefits of economic growth (name & explain 4 briefly)?
- Increased income
- Increases in GDP means on average more people will have more income
- More leisure time
- As economy grows, it’s possible to spend less time working = because of significant improvements in efficiency
- Greater life expectancy
- People can live longer = advances in medical technology
- Better public services
- Government can collect more tax revenue (linked to increased income and spending) = spend more on health care education, transport, etc
What are the problems with economic growth? Name 5
- Increase in the income distribution gap
- Unsustainable growth = lack of resources
- Inflation = prices will rise
- Environmental damage = more goods are produced
- Rapid economic growth = recession
What is economic growth?
The increase in national income over time
What is national income?
The income of an nation over a period time
What is an income distribution gap?
The difference between high income earners and low income earners
What does it mean to if a person is unemployed?
They are without a job but are seeking work but cannot find it
How is unemployment measured? Name 2 method and briefly explain them
- International Labour Organisation (ILO) survey
- Involves asking people whether or not they are in work
- Claimant count
- Counts people who claim the unemployment benefit
Define off-peak season
A time during the year when demand is low
Define economically inactive
People who are out of work but don’t meet criteria of unemployment
Define redundant
To be let go from work
Name the 5 types of unemployment
- Cyclical unemployment
- Structural unemployment
- Frictional unemployment
- Seasonal unemployment
- Voluntary unemployment
What is cyclical unemployment?
Linked to economic cycle - during downturn = business activity slows & worker laid off