Macroeconomic Objectives and Policies 8 (J) done Flashcards

1
Q

5 economic objectives

A
  1. sustainable economic growth
  2. full employment
  3. price stablility
  4. equitable income distribution
  5. more efficient resource allocation
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2
Q
  1. sustainable economic growth
A

increase capacity of economy to increase standard of living.
- aim of sustainable rates that are non inflationary and resource efficient 3-4%

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3
Q
  1. full employment
A

a job for everybody that wants to and able to work
- approach NAIRU (non accelerating inflationary rate of unemployment) 4.5%
- full use of resources maximises capacity to produce and minimise the adverse economic and social problem of unemployment

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4
Q
  1. price stability
A

little or no sustained, appreciable rise in the general price level
- inflation at 2-3% on average over the economic cycle as high inflation reduces value of income, competitiveness, and causes uncertainty and loss of confidence

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4
Q
  1. equitable income distribution
A

balance of efficiency, rewards and incentives with fairness (equity)
- policies to reduce the gap between the wealthy and those in poverty is growing world wide
- reduce welfare dependancy

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5
Q
  1. a more efficient resource allocation
A

structural changes
- includes technical, allocative and dynamic

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6
Q

Technical efficiency

A

combining resources more productively

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7
Q

Allocative efficiency

A

minimising resource waste, sending resources to where they are most useful

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8
Q

Dynamic efficiency

A

ability to adapt and change over time

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9
Q

main role of macroeconomic policies

A

to stabilise large fluctuations in the business cycle. policies tend to influence level of AD

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10
Q

fiscal policy definition

A

a macroeconomic policy that implements government spending, taxation and the budget outcome to achieve management of the economy

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11
Q

main fiscal policy tool

A

Government annual budget

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12
Q

2 tools gov can use for fiscal policy

A
  1. automatic stabilisers
  2. discretionary measures
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13
Q

automatic stabilisers do not…

A

require any gov intervention to operate

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14
Q

what do automatic stabilisers do

A

boost aggregate demand during periods of recession and lower aggregate demand in a boom period when the economy expands

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15
Q

example of automatic stabilisers

A

progressive income tax

16
Q

automatic stabilisers explanation

A

during a recession there are increased (welfare) claims on government spending which will increase injections, this will increase AD. hence economic growth is dampened

17
Q

discretionary measures definition

A

the deliberate manipulation of government spending and/or taxation to achieve government economic objectives

18
Q

discretionary measures example

A

building a major highway during a recession
explanation: increases injections into the economy and increase aggregate demand hence the economic low is dampened

19
Q

monetary policy purpose

A

involves action by the RBA to influence the cost and availabiloty of money in the economy

20
Q

RBA aims/objectives

A
  1. stability of Australia’s currency (inflation - 2-3%)
  2. reducing level of unemployment
  3. promoting a sustained level of economic growth (GDP)
21
Q

what does transmission mechanism mean

A

changes in the interest rate impacts on other market rates and in turn, the components of AD

22
Q

transmission mechanism steps

A
  1. RBA changes cash rate (interest rate)
  2. banks respond by changing rates on loans and deposits
  3. costs of borrowing and return on savings change
  4. changes in interest rates causes changes in exchange rates
  5. causes changes in consumption, net exports, investment
  6. changes in C + I + G + (X-M) causes changes in productivity and output and employment and economic growth
  7. changes in EG will effect - price of goods and services, wages and therefore inflation
23
Q

fiscal policy uses which model

A

AE 45 degree model

24
Q

monetary policy uses which model

A

AD/AS model