Topic 4 Flashcards
What are the five main economic goals for a government?
- Stable economic growth
- Low and Stable Inflation (Price Stability)
- Low unemployment
- Balance of payments stability
- Redistribution of income
What is a general aim all governments have?
Sustainable economic growth (increased output)
Increase in potential productive capacity.
What does an outward shift in the PPC indicate?
Long term economic growth.
What happens that makes the PPC shift outwards?
The quality and quantity of the factors of production have increased.
Economy is under using their resources.
When an economy is in a recession, and output falls below full employment, the economy is at point A, where resources are underused/unemployed.
Once economic growth returns to the economy and resources are returned to their full use, the economy will experience an increase in actual output and will move to point B.
What does unemployment mean?
Resources are not being fully used.
What is the formula for unemployment rate?
Unemployment rate= Number of unemployed/Total labour force×100
Why is there a surplus in the balance of payments?
When there are more exports than imports, the country earns more than it spends.
Why is there a defecit in the balance of payments?
When there are more imports than exports.
What do governmnets do to lower income inequality?
Redistribution - PROGRESSIVE TAXATION - tax higher on rich people, than the poor.
Give and example of possible conflicts between macroeconomic aims
Maintaining full employment of all resources, and price stability.
Explain why maintaining full employment of all resources will clash with price stability.
To boost employment and increase growth, there will need to be an increase in demand, and thus a decrease in interest rate or tax.
This will boost employment, more demand, and more output levels, but there will be inflation, due to the increase in price.
What can increased employment clash with
Increased employment will boost consumer demand for imports and may reduce the balance of international payments.
What can economic growth clash with?
To achieve economic growth, governments and firms may use natural resources and may contribute to environmental pollution.
What can price inflation clash with?
To decrease inflation, governments will increase tax and interest rate, which will decrease demand and expenditure, leading to higher unemployment due to higher costs. The total supply will also decrease, leading to a lower economic growth.
