The Objectives Of Government Economic Policy Flashcards
What are the four main objectives
Economic growth
minimising unemployment
Control inflation
Satisfactory balance of payments on the CA
Define short run economic growth
Growth of real output by using up idle resources
Define long run economic growth
An increase in real output and shift outward of the PPF of the economy
What GDP is economic growth measured in
Real GDP (adjusted to the inflation)
US real GDP in 1930s Great Depression
Fell by 9.4%
How much had gdp fallen in 1932 USA depression
31%
How is full employment measured
3% or less of labour force are unemployed
Free market definition of full employment
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
Two measurements of unemployment U.K.
Claimant count (amount claiming JSA)
Labour force survey
Define inflation
A persistent or continuing rise in the average price level
Define deflation
Persistent or continuing fall in the average price level
Disinflation
The rate of inflation is falling but still positive
Define consumer price index (CPI)
Measure used to calculate rate of consumer price inflation
The average price of a basket of 700 different consumer goods and services
Define balance of payments
Record of all currency flows into and out of a country
What is the current account on the balance of payments
This measures all the currency flows into and out of a country in payment for exports and imports with income and transfer dlows
Balanced budget
When govt spending equals govt revenue
Since when has reducing the budget deficit become an important policy
2008/9 revession
Define policy conflict
When two objectives cannot occur at the same time, but may lead to a trade off
What might full employment/economic growth conflict with
Balance of payments
Control of inflaiton
What might economic growth conflict with
Income equality
What type of macroeconomic policies were implemented in 1975-1979
Keynesian
What do Keynesian economists believe
That governments should manage the economy,particularly with fiscal policy
What are the prime policy objectives to Keynesian
Full employment
Growth
Fair distribution of income and wealth
When did pro free market economics come into place
1979 under market thatcher
What do pro free market economics believe about macroeconomic policy
That there should be limited or no govt intervention
What effects on policy have dominated U.K. recent macroeconomic policy
Loose monetary and tight fiscal
I.e. low IR and cut govt spending to reduce deficit
What are lead indicators
Provide info on the future state of the economy
What are lag indicators
Providers of info on the past or current state of the economy
diagram to show conflict between inflation and unemployment
phillips curve
explain phillips curve
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
