MACROECONOMIC OBJECTIVES & POLICIES

What is ECONOMIC GROWTH?

% CHANGE IN REAL GDP / TIME

Define the term UNEMPLOYMENT RATE

% OF THE LABOUR FORCE THAT IS OUT OF WORK but ACTIVELY SEEKING EMPLOYMENT

What is the UK”s TARGET RATE OF IMFLATION?

2%

What is a CURRENT ACCOUNT SURPLUS?

VALUE OF EXPORTS > VALUE OF IMPORTS

What does a BALANCED GOVERNMENT BUDGET mean?

GOV TAXATION REVENUE = GOV EXPENDITURE

-OVER ONE YEAR-

How is INCOME INEQUALITY measured?

Gini Coefficient

What does CPI stand for?

CONSUMER PRICE INDEX

Give the definition of BALANCE OF PAYMENTS

ALL THE FINANCIAL TRANSACTIONS BETWEEN A COUNTRY AND THE REST OF THE WORLD

What is the UK’s ENVIRONMENTAL TARGET FOR EMISSIONS REDUCTION by 2035?

Reduce total greenhouse gas emissions by AT LEAST 81%

The UK government AIMS to run a budget deficit

TRUE OR FALSE

FALSE

The UK government aims to run a BALANCED budget

At what point does an economy reach FULL EMPLOYMENT?

When an economy is ONLY EXPERIENCING FRICTIONAL UNEMPLOYMENT

How are GOVERNMENT BUDGETS affected by economic growth?

They are AFFECTED POSITIVELY by ECONOMIC GROWTH, by INCREASING TAX REVENUE

What are DEMAND - SIDE policies?

Policies that AIM TO SHIFT THE AD CURVE in an economy

Define FISCAL POLICY

The USE OF GOVERNMENT SPENDING AND TAXATION to influence the AD and LRAS in an economy

What is MONETARY POLICY?

Policy used by the central bank of an economy to ADJUST THE BASE RATE OF INTEREST AND THE MONEY SUPPLY to INFLUENCE AD

Who is responsible for setting monetary policy in the UK?

BANK OF ENGLAND

What is quantitative easing (QE)?

Quantitative easing is when a central bank CREATES NEW MONEY —> USES IT TO PURCHASE GOV BONDS = INJECTS LIQUIDITY INTO THE FINANCIAL SYSTEM.

LOWERS LONG- TERM INTEREST RATES

ENCOURAGES BANKS TO LEND AND BUSINESS TO INVEST

Does EXPANSIONARY monetary policy shift the demand curve to the left or right?

To the RIGHT (OUTWARDS)

What is the KEY MACRO-ECONOMIC TARGET of the Monetary Policy Committee (MPC)?

TO CONTROL INFLATION BY TARGETING THE CPI RATE AT 2%

What are direct taxes?

Taxes that are IMPOSED ON INDIVIDUALS OR FIRMS on their INCOME, WEALTH AND PROFITS

What are INDIRECT TAXES?

Taxes that are IMPOSED ON GOODS AND SERVICES (E.g. VAT)

How many TIMES does the MPC MEET each year?

8 TIMES A YEAR (every 6 weeks)

What makes MONETARY POLICY EFFECTIVE?

The BoE operates independently from the government

What is weakness of FISCAL POLCIY?

A weakness of fiscal policy is that POLICIES CAN ALTER SIGNIFICANTLY WHEN GOVERNMENTS CHANGE

What are SUPPLY - SIDE policies?

Policies that aim to SHIFT LONG RUN AGGREGATE SUPPLY

What are SUPPLY - SIDE INTERVENTIONIST POLICIES?

Policies that require GOVERNMENT INTERVENTION to INCREASE the POTENTIAL REAL NATIONAL OUTPUT

What are MARKET - BASED SUPPKY - SIDE policies?

Policies that aim to REMOVE DISTORTIONS in the FREE MARKET that HINDER IMPROVEMENTS in the LONG - RUN PRODUCTIVE POTENTIAL of the economy

What is the overall AIM OF SUPPLY - SIDE POLICIES?

To INCREASE THE QUANTITY , QUALITY OR BOTH OF THE FACTORS OF PRODUCTION

Is PRIVATISATION AND INTERVENTIONIST OR MARKET BASED SUPPLY - SIDE POLICY?

Market - based

Suggest an example of a MARKET - BASED approach to INCREASE INCENTIVES

REDUCING the RATE OF INCOME TAX & CORPORATION TAX

How can the government improve the SKILLS AND QUALITY of the LABOUR FORCE?

The government can improve the skills and quality of the labour force by INCREASING SPENDING ON EDUCATION AND RE- TRAINING

Suggest an INTERVENTIONIST approach to PROMOTING COMPETITION

RESEARCH AND DEVELOPMENT GRANTS TO GENERATE MORE INNOVATION

What does PRIVATISATION mean?

Privatisation is the TRANSFER OF OWNERSHIP of a business, enterprise, industry or service from the PUBLIC SECTOR —> PRIVATE SECTOR

What is DEREGULATION?

Deregulation is the REDUCTION OR ELIMINATION OF GOVERNMENT CONTROL in a particular industry.

Example of deregulation in the UK?

The 2006 DEREGULATION OF THE UK POSTAL SERVICES MARKET.

The gov ended Royal Mail’s long - standing legal monopoly on delivering letters and parcels, which opened up the market for private delivery operators like DPD and FedEx.

The ROYAL MAIL WAS PRIVATISED FULLY IN 2015

How do successful SUPPLY- SIDE POLICIES affect the long - run aggregate supply curve?

INCREASE the long - run aggregate supply curve by SHIFTING IT TO THE RIGHT

What is a weakness of SUPPLY - SIDE POLICIES?

A weakness of supply - side policies is that they are EXPENSIVE TO IMPLEMENT

In macro - economic objectives, what does the term TRADE - OFF mean?

By PURSUING ONE MACROECONOMIC OBJECTIVE THE ADVANCEMENT OF ANOTHER MAY HAVE TO BE SACRIFICED.

How does economic growth affect INFLATION?

Economic growth can lead to HIGHER INFLATION as PRICES for remaining scarce resources are BID UP

What is a TRADE - OFF between ECONOMIC GROWTH and ENVIRONMENTAL SUSTAINABILITY?

A trade - off between economic growth and environmental sustainability is that growth OFTEN INCREASES POLLUTION and DEPLETES NON - RENEWABLE RESOURCES

E.g. CHINA’S ECONOMIC GROWTH AROUND THE LAST DECADE HAS BEEN 5% HOWVER THEY HAVE SOME OF THE WORLDS MOST AIR POLLUTED CITIES AND RANKED THE WORLDS 11TH DIRTIEST COUNTRY IN 2019 (for air pollution)

What does the SHORT - RUN PHILLIPS CURVE show?

The TRADE - OFF BETWEEN UNEMPLOYMENT AND INFLATION

What is the relationship between unemployment and inflation according to the curve?

RISING INFLATION = FALLING UNEMPLOYMENT

How does economic growth affect INCOME INEQUALITY?

It can INCREASE INCOME INEQUALITY AS PROFITS FOR THE OWNERS OF THE FACTORS OF PRODUCTION OFTEN OUTPACE WAGE INCREASES

What is a trade -off between ECONOMIC GROWTH and BALANCING THE CURRENT ACCOUNT

A trade - off is that economic growth usually leads to HIGHER INCOMES and INCREASES IN SPENDING ON IMPORTS. This WORSENS the current account balance.

How does RAISING INTEREST RATES affect SUPPLY - SIDE INVESTMENT?

Raising interest rates SLOWS DOWN supply - side investment by RAISING THE COST OF BORROWING FOR FIRMS

What is a conflict between EXPANSIONARY FISCAL POLICY and SHORT - RUN AGGREGATE SUPPLY?

Expansionary fiscal policy may cause a SHORTAGE IN SRAS as GOVERNMENT SPENDING causes EXCESS DEMAND, leading to INFLATION

How can ENVIRONMENTAL POLICIES affect the long - run aggregate supply curve (LRAS)?

Increased environmental policies may lead to a FALL IN ECONOMIC GROWTH and a LOWER LONG- RUN AGGREGATE SUPPLY. This will SHIFT the CURVE to the LEFT

What is a TRADE - OFF between LOW UNEMPLOYMENT and LOW INFLATION?

A trade - off is that as an economy MOVES CLOSER TO ITS PRODUCTIVE POTENTIAL, WAGE INFLATION INCREASES, leading to RISING INFLATION

Demand - side and supply - side policies are always in conflict

TRUE OR FALSE

FALSE

Governments and central banks use a COMBINATION OF DEMAND - SIDE AND SUPPLY - SUDE POLICIES to address economic issues