Policy Objectives Flashcards
What are policy instruments?
Techniques used to achieve policy objectives e.g monetary policy to tackle inflation
What is the definition of policy objectives?
The targets that the government want to achieve: TIGER
What are policy indicators?
Allow a way to measure changes in economic performance, e.g CPI, RPI and GDP
What are boom/busy policies?
The government using macroeconomic tools to stimulate and then contract the economy.
E.g trying to reach full employment but then causing inflation so increasing interest rates
What is total factor productivity?
The overall productivity of inputs used by a firm in producing a particular level of output.
What is the def of economic growth?
Situation where an economy is able to produce more goods and services over time, represents an increase in the economy’s productive capacity (PPF).
What is inflationary pressure?
When does it occur?
When increasing rates of economic growth cause inflation and lead to an increase in imports.
Happens in a positive output gap.
What’s the def of inflation?
A persistent increase in the general levels of prices of an economy.
How do you measure the rate of inflation?
CPI (consumer price index)= measure of the price level of 650 goods and services consumed over time by most households
What are the 3 major costs of inflation?
- Consumers anticipatory buying= increase AD raises prices even further so sudden less spending
- Workers anticipate inflation by increasing wage demands= higher cost inflation (SRAS left)
- Firms increases prices to cover wage and cost increases= higher inflation
How is inflation beneficial?
- Stimulate economy= consumers buy sooner
- Borrowing money= mortgages or loans are eroded
- Wages= rising prices means easier to raise wages
- Government= debt of £90bn reduced
AIM= 2%-2.5%
What is the def of deflation?
A situation where there is a persistent decrease in general price levels over time.
What are the 3 steps of the balance of payments?
- Balance= X is equal to M
- Surplus= X exceeds M
- Deficit= M exceeds X
What is a credit crunch?
Where borrowing becomes more expensive or unavailable.
