The Objectives Of Government Economic Policy Flashcards
What are the government’s main economic objectives?
-Economic growth
-Minimising Unemployment
-Price Stability
-Stable Balance of payments on current account
-Balanced government Budget
-Greater Income Equality
What do governments aim for in terms of economic growth?
They aim to have sustainable economic growth for the long run.
What is the UK government’s inflation target?
2%
What will the inflation target of 2% provide?
-This will provide price stability for firms and consumers, and will help them make decisions in the long-term.
What do the Bank of England have to do if inflation falls 1% outside the target?
The governor of the Bank of England has to write a letter to the Chancellor of the Exchequer to explain why this happens and what the Bank of England intends to do about it.
What is the Government’s objective with payments on current accounts?
They aim for the current account to be satisfactory so there isn’t a large deficit. (Near equilibrium).
What does a stable balance of payments mean for the country?
It means they can sustainably finance the current account, this is good for long term growth.
What does a balanced government budget ensure?
-This ensures the government keep control of state borrowing, so the national debt doesn’t escalate making repayments easier.
Why is Greater Income Equality an important objective for the government?
Income and Wealth should be distributed equitably, so the gap between the rich and the poor isn’t extreme.
What are the potential conflicts and trade-offs between Economic growth and Inflation?
-A growing economy is likely to experience inflationary pressures on the average price level, especially when there is a positive output gap.
Potential conflicts and trade-offs between economic growth vs the current account
-During periods of economic growth, consumers have high levels of spending.
-In the UK, consumers have a high marginal propensity to import, so there is likely to be more spending on imports worsening the current account deficit…
Conflicts and trade-offs between economic growth and government budget deficit
-Reducing a budget deficit requires less expenditure and more tax revenue.
Conflicts and trade-offs between economic growth and the environment
-High rates of economic growth are likely to result in high levels of negative externalities such as pollution and the usage of non-renewable resources.
potential conflicts and trade-offs between unemployment and inflation
-In the short run, there is a trade off between the level of unemployment and inflation
-As economic growth increases, unemployment falls due to more jobs being created. However this causes wages to increase which can lead to more consumer spending and inflation.
