AQA Economics A-level: Macroeconomic Objectives and Trade-offs

What are the four main macroeconomic objectives of government policy?

Economic growth, minimizing unemployment, price stability, and stable balance of payments on current account.

What is the long run trend of economic growth in the UK?

About 2.5%.

Why might governments in developing economies prioritize economic development over economic growth?

To improve living standards, increase life expectancy, and improve literacy rates.

What unemployment rate do governments aim for to achieve near full employment?

Around 3%.

What is the UK government's inflation target?

2%, measured with CPI.

What happens if the inflation rate falls 1% outside the target in the UK?

The Governor of the Bank of England must write a letter to the Chancellor of the Exchequer explaining the situation and the Bank's intentions.

What does a stable balance of payments on the current account indicate?

It means the country can sustainably finance the current account, which is important for long-term growth.

What is the significance of a balanced government budget?

It helps control state borrowing, prevents escalation of national debt, and allows for cheaper future borrowing.

What does greater income equality aim to achieve in society?

It aims for equitable distribution of income and wealth, reducing the gap between the rich and poor.

What is a potential conflict between economic growth and inflation?

A growing economy may experience inflationary pressures, especially with a positive output gap.

How can economic growth negatively impact the current account?

High consumer spending during growth can lead to increased imports, worsening the current account deficit.

What is the relationship between economic growth and the government budget deficit?

Reducing a budget deficit may require less expenditure and more tax revenue, which can decrease AD and hinder economic growth.

How does high economic growth relate to environmental concerns?

It can lead to negative externalities like pollution and increased use of non-renewable resources due to higher manufacturing.

What is the trade-off between unemployment and inflation illustrated by?

The Phillips curve.

What happens to unemployment and wages as economic growth increases?

Unemployment falls due to job creation, but wages may increase, leading to higher consumer spending and inflation.

How can supply-side policies affect the trade-off between unemployment and inflation?

They can reduce structural unemployment without increasing average wages.