Edexcel Economics (A) A-level Theme 2: The UK Economy - Performance and Policies

A series of flashcards based on key concepts from Edexcel Economics (A) A-level Theme 2: The UK Economy, summarizing macroeconomic objectives, policies, and potential conflicts.

What are the four main macroeconomic objectives of the UK government?

Economic growth, low unemployment, low and stable rate of inflation, and balance of payments equilibrium on the current account.

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

About 2.5%.

What is the UK government's inflation target?

2%, measured with CPI.

What is the acceptable unemployment rate the UK government aims for?

Around 3%.

What is Quantitative Easing (QE)?

A monetary policy used to stimulate the economy by increasing the money supply, often through the purchase of government bonds.

What is the goal of expansionary fiscal policy?

To increase aggregate demand (AD) by increasing government spending or reducing taxes.

How does reducing interest rates affect aggregate demand?

• It lowers the cost of borrowing

• encourages consumption and investment,

• can lead to increased asset prices.

What is the distinction between monetary policy and fiscal policy?

• Monetary policy involves controlling the money flow through interest rates

• fiscal policy involves government spending and taxation.

What is a balanced government budget?

When government expenditure equals tax receipts.

What is meant by structural unemployment?

Unemployment resulting from industrial reorganization, typically due to a mismatch between skills and job requirements.

What are market-based supply-side policies?

Policies that limit government intervention and rely on free market forces to eliminate imbalances.

What is the potential conflict between economic growth and inflation?

As the economy grows, it may generate inflationary pressures especially if demand increases faster than supply.

What is deflationary fiscal policy?

A policy that aims to decrease aggregate demand by cutting government spending or increasing taxes.

What are the effects of high interest rates on fiscal policy?

High interest rates may limit the effectiveness of fiscal policy as they increase the cost of government borrowing.

What is a potential conflict between environmental policies and competitiveness?

'Green taxes' or pollution permits might limit production, affecting domestic firms' competitiveness.

What is meant by the Phillips curve in economics?

A concept that shows the trade-off between unemployment and inflation, indicating that lower unemployment can lead to higher inflation.