Th2.6: Possible Macroeconomic Objectives

Question 1

What are the seven possible macroeconomic objectives?

Answer 1

economic growth
low unemployment
low and stable inflation
balance of payment equilibrium on the current account
balance government budget
protection of the environment
greater income equality

Question 2

Economic growth

Answer 2

governments aim to have sustainable economic growth for the long run

Question 3

Low unemployment

Answer 3

governments aim to have as near to full employment as possible

Question 4

Low and stable inflation

Answer 4

In the UK the governments aim is 2% and measured by the CPI - this helps provide price stability for firms and consumers and will help them make decisions for the long run

Question 5

Balance of payments equilibrium on the current account

Answer 5

this is important to allow the country to sustainably finance the current account, which is important for long term growth

Question 6

Balance government budget

Answer 6

ensures the government keeps control of state borrowing, so the national debt does not escalate - allows governments to borrow cheaply in the future should they need to and make repayments easier

Question 7

Protection of the environment

Answer 7

aims to provide long term environmental stability - ensures resources are not exploited and are used sustainably - no excessive pollution

Question 8

Greater income equality

Answer 8

minimises the gap between the rich and poor - generally associated with a fairer society

Question 9

What is the long run trend of economic growth in the UK?

Answer 9

2.5%

Question 10

Why do the government aim for an unemployment rate of around 3%?

Answer 10

they account for frictional unemployment

Question 11

In times of a recession, what will the government do?

Answer 11

increase AD to increase employment and economic growth

Question 12

In times of a boom, what will the government do?

Answer 12

decrease AD to decrease inflationary pressures

Question 13

Why will the government use supply side policies?

Answer 13

aim to bring about long-term growth