Macroeconomic objectives Flashcards

1
Q

What are the main macroeconomic objectives

A

Inflation, economic growth, Unemployment and balance of payments.

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2
Q

The government wants inflation to be

A

low to ensure that prices are stable this influences investment and consumption

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3
Q

What is demand pull inflation

A

Demand-pull inflation is when there is an increase in aggregate demand, and the supply remains the same or decreases and price increases

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4
Q

What is cost push inflation

A

Cost-push inflation occurs when we experience rising prices due to higher costs of production and higher costs of raw materials so prices rise.

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5
Q

The government wants unemployment to be

A

low so the economy can operate at full capacity and there is no output gap. Also have more employment AD will increase as consumption will increase as more people will have more money to spend.

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6
Q

The government wants what type of economic growth

A

positive growth which is the eventual increase of GDP over time

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7
Q

What is a slump period and a boom period

A

When economic growth is negative the economy goes into a slump period and when positive the economy goes into a boom period.

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8
Q

How can GDP increase

A

GDP will increase when there are less withdrawals than injections into the economy. Also when there I better productivity

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9
Q

Explain a slump period

A

In a slump there is a negative output gap which is where actual GDP is lower than trend rate, also slumps are associated with unemployment and low levels of inflation and in boom phases the opposite.

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10
Q

What does the government want balance of payments to be

A

BALANCED between the current, capital and financial accounts

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11
Q

What are the 3 accounts in balance of payments

A

Current, capital and finance

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12
Q

What is the main account the government is most interested in

A

Current which holds the record for exports and imports

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13
Q

What is a floating balance of payments

A

It is a balance of payments which are always balanced

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14
Q

What is a deficit on the current account

A

A deficit on the current account is when imports are worth more than exports and a surplus is the other way around.

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15
Q

What are the possible macro objective conflicts

A

Economic growth vs Inflation
Economic growth vs Current account balance of payments
Economic growth vs Budget deficit
Economic growth vs Environment
Unemployment vs inflation

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16
Q

Why is there a conflict between economic growth and inflation

A

If there is rapid economic growth, it is more likely that inflationary pressures will increase.

17
Q

Why is there a conflict between economic growth and current account of balance of payments

A

When economic growth is led by consumer spending, it tends to cause a deficit in the current account. This is because as consumer spending rises, there will be a rise in import spending.

18
Q

Why is there a conflict between economic growth and the Budget deficit

A

A government may feel it needs to reduce the budget deficit. This will require higher taxes and lower spending. However, this tightening of fiscal policy will lead to a fall in AD and lead to lower economic growth.

19
Q

Why is there a conflict between economic growth and the environment

A

There can be a strong conflict between economic growth and environmental objectives. Higher GDP leads to higher levels of pollution and consumption of non-renewable resources.

20
Q

Why is there a conflict between Unemployment and inflation

A

In a period of high growth – jobs are created, causing unemployment to fall. But, as unemployment falls, it can put upward pressure on wages, leading to inflation.

21
Q

What do you need to do in unit 2 exam questions

A

Always include AO1 if there is a definition in the question

Always link your answer to the question when making points