The Objectives of Government Economic Policy

Question 1

What are macroeconomic objectives?

Answer 1

Aims and objectives that any government wish to achieve for an economy

Question 2

What are economic policies?

Answer 2

Tools and methods used to influence the macroeconomy

Question 3

What are the main macroeconomic objectives?

Answer 3

Economic growth, price stability, minimising unemployment and a stable balance of payments on current account
Others- Balance budget and equitable distribution of income
- Importance changes over time

Question 4

What is used to measure national economic performance?

Answer 4

Economic Growth
Unemployment
Inflation
Balance of Payments

Balancing the Budget
Equitable Distribution of Income

Question 5

What is Economic Growth?

Answer 5

• Measures the rate of change of a country’s output
• Key measure is GROSS DOMESTIC PRODUCT (GDP), which calculates the sum of a country’s output over 1 year
• A crucial goal of macroeconomic performance

Question 6

Why is Economic Growth an objective?

Answer 6

• Job creation
• Rising incomes
• Improved SOL
• Improved international competitiveness of the UK economy
• Multiplier and accelerator benefits
• Lower GS on job seekers allowance and benefits
• Tax revenues are likely to ^ allowing the G to re-invest

Question 7

What is Unemployment?

Answer 7

• Represents a waste of resources
• High unemployment is an indicator of poor economic performance
• Strong EG= low unemployment

Question 8

What are the benefits of low unemployment?

Answer 8

• ^ consumption and aggregate demand
• ^ incomes
• Improved SOL
• ^ tax revenue for government
• Lower government spending on unemployment related welfare
• Improved productivity of UK economy
• Reduced poverty (absolute and relative)
• Social benefits (reduced crime, improved wellbeing)

Question 9

What is Inflation?

Answer 9

• The “rate of change of average prices in an economy” as measured by the Consumer Price Index (CPI)
• It affects the value of £s in your pocket,
• Wage depends on it
• High, or rising inflation, damages the real value of money and erodes spending power

Question 10

What is BoP?

Answer 10

• This measures the UK’s record of economic activities with other countries
• Imports and exports
• If Exports > Imports = Surplus
• If Imports > Exports = Deficit
• Current account wants surplus

Question 11

How much does BoP matter?

Answer 11

• In the UK- Surplus in our trade in services, deficit in goods
• The UK has had a sustained and persistent deficit
• More imported goods= ^ SOL
• Imports= Lower costs

Question 12

What is Balanced Budget?

Answer 12

• The value of the government spending compared with the money earned by the government through taxation over a period of time
• Preferred= Government expenditure and the value of taxation to be the same as each other so that the government’s budget is balanced

Question 13

What is Equitable Distribution of Income?

Answer 13

• How evenly incomes are shared between individuals and households across the economy
• Not equal in households
• Means that a large gap between rich and poor does not expand

Question 14

Can objectives lead into one another?

Answer 14

Yes