The Objectives Of Government Economic Policy

Question 1

What are the four main objectives

Answer 1

Economic growth
minimising unemployment
Control inflation
Satisfactory balance of payments on the CA

Question 2

Define short run economic growth

Answer 2

Growth of real output by using up idle resources

Question 3

Define long run economic growth

Answer 3

An increase in real output and shift outward of the PPF of the economy

Question 4

What GDP is economic growth measured in

Answer 4

Real GDP (adjusted to the inflation)

Question 5

US real GDP in 1930s Great Depression

Answer 5

Fell by 9.4%

Question 6

How much had gdp fallen in 1932 USA depression

Answer 6

31%

Question 7

How is full employment measured

Answer 7

3% or less of labour force are unemployed

Question 8

Free market definition of full employment

Answer 8

When the aggregate labour market is at the market clearing real wage rate where the number of workers willing to work equals number of workers employers want to hure

Question 9

Two measurements of unemployment U.K.

Answer 9

Claimant count (amount claiming JSA)
Labour force survey

Question 10

Define inflation

Answer 10

A persistent or continuing rise in the average price level

Question 11

Define deflation

Answer 11

Persistent or continuing fall in the average price level

Question 12

Disinflation

Answer 12

The rate of inflation is falling but still positive

Question 13

Define consumer price index (CPI)

Answer 13

Measure used to calculate rate of consumer price inflation
The average price of a basket of 700 different consumer goods and services

Question 14

Define balance of payments

Answer 14

Record of all currency flows into and out of a country

Question 15

What is the current account on the balance of payments

Answer 15

This measures all the currency flows into and out of a country in payment for exports and imports with income and transfer dlows

Question 16

Balanced budget

Answer 16

When govt spending equals govt revenue

Question 17

Since when has reducing the budget deficit become an important policy

Answer 17

2008/9 revession

Question 18

Define policy conflict

Answer 18

When two objectives cannot occur at the same time, but may lead to a trade off

Question 19

What might full employment/economic growth conflict with

Answer 19

Balance of payments
Control of inflaiton

Question 20

What might economic growth conflict with

Answer 20

Income equality

Question 21

What type of macroeconomic policies were implemented in 1975-1979

Answer 21

Keynesian

Question 22

What do Keynesian economists believe

Answer 22

That governments should manage the economy,particularly with fiscal policy

Question 23

What are the prime policy objectives to Keynesian

Answer 23

Full employment
Growth
Fair distribution of income and wealth

Question 24

When did pro free market economics come into place

Answer 24

1979 under market thatcher

Question 25

What do pro free market economics believe about macroeconomic policy

Answer 25

That there should be limited or no govt intervention

Question 26

What effects on policy have dominated U.K. recent macroeconomic policy

Answer 26

Loose monetary and tight fiscal
I.e. low IR and cut govt spending to reduce deficit

Question 27

What are lead indicators

Answer 27

Provide info on the future state of the economy

Question 28

What are lag indicators

Answer 28

Providers of info on the past or current state of the economy

Question 29

diagram to show conflict between inflation and unemployment

Answer 29

phillips curve

Question 30

explain phillips curve

Answer 30

a demand side policy to reduce unemployment can lead to inflation

unemployment falls, labour shortages may cause an increase in wage inflation and higher unit costs

when economy is booming - derived demand for raw materials incraeses leading to higher costs

rising demand and falling unemployment will lead to higher costs on the consumer so firms can achieve higher profit margins