Economies of scale (recap)

What are 5 main government economic objectives?

Economic growth

Low unemployment

Price stability

Balance of payments stability

Fairer income distribution

What is the balance of payments (BOP)?

A record of economic transactions between a counrey and the rest of the world, including trade and financial flows

What is the difference between a trade surplus and deficit?

Surplus: exports exceed imports

Deficit: imports exceed exports

Large imbalances may cause economic problems

Why do governments aim for balance of payments stability?

To avoid unsustainable external deficits or surpluses and reduce risks to economic stability

How can governments redistribute income?

Progressive taxation, welfare payments, pensions, and public servies (healthcare, education)

What is progressive taxation?

A tax system where higher-income earners pay a larger percentage of their income in tax

Why can government economic objectives conflict?

Improving one objective may harm another, forcing govts to make trade-offs

Give 3 examples of conflicts between economic objectives

Growth may raise inflation, reducing inflation may increase unemployment

Redistribution may weaken work incentives

What 4 indicators measure economic performance?

GDP: output

Unemployment rate: joblessness

Inflation rate: price increases

Current account: external transactions

How do govts use economic indicators?

To assess economic performance, identify problems, and evaluate whether their policies are achieving objectives