Pack 1 Flashcards
• Outline the seven macroeconomic objectives
4 key objectives:
-Economic growth (rises in real GDP)
-Reduce unemployment and keep it at a low level
-keep inflation low and stable
-maintain an equilibrium/surplus on the current account of the balance of payments
Other 3 objectives:
-protection of the environment
-greater income equality
-balanced government budget
• Explain the three things GDP is equal to
Incomes
Expenditure
Output
• Define the term ‘economic growth’
The % increase in real GDP
(new-old)/old x100
• Define the term ‘unemployment’
When people who are willing, able to and actively looking for work but are not employed
• How is unemployment calculated?
( # of ppl unemployed/total # of ppl in the workforce ) x 100
*The total number of people in the workforce includes those who are unemployed
• Distinguish between inflation deflation and disinflation (A numerical example might help here)
Inflation - general raise in prices (positive increasing number)
Disinflation - a fall in the rate of inflation, this doesn’t mean prices are falling, they are just increasing slower than before (positive decreasing number)
Deflation - a decrease in the general level of prices / negative inflation (negative decreasing number)
• Describe the components of the current account and give an overview of the UK’s current account performance
Components:
-Trade in goods (X & M , Negative)
-Trade in services (Positive)
-Investment income (Positive)
-Current transfers between a country and the rest of the world (Negative)
Current UK balance:
-Negative 18-19 billion GBP
• Explain why greater income equality is a macroeconomic objective and how it might be achieved
Why:
-to avoid poverty and child poverty
-to make a fairer society
-to encourage social cohension
How:
-progressive tax system, the rich pay more income tax than the poor
-free, state provided education and healthcare
-benefits for those on low incomes, unemployed disabled etc
-national minimum wage
• Explain why a balanced government budget is macroeconomic objective and how it might be achieved
Why:
-to avoid high gov debt and burdening future generations with this debt
-to avoid high interest costs
-to maintain confidence in the economy and avoid a poor credit rating
How:
-by reducing gov spending, e.g. reducing unemployment benefits
-by increasing direct and indirect taxes
-by encouraging the economy to grow so tax revenue and gov spending will automatically fall
• Distinguish between a balanced government budget, budget deficit and budget surplus and national debt
Balanced gov budget - for taxation revenue to equal gov spending and avoid a budget deficit
Budget deficit - when gov spending exceeds gov revenue during a 12 month period
Budget surplus - when tax revenues exceed gov spending over a 12 month period
National debt - the total amount of money a country owes which is built up over a period of time. It is the accumulation of budget deficits run in past years.
• Outline the UK government’s financial position (in terms of budget deficit and national debt - include trends and figures)
National debt is currently around £2.1 trillion.
