Macroeconomic Objectives and Policies 8 (J) done

Question 1

5 economic objectives

Answer 1

1. sustainable economic growth
2. full employment
3. price stablility
4. equitable income distribution
5. more efficient resource allocation

Question 2

1. sustainable economic growth

Answer 2

increase capacity of economy to increase standard of living.
- aim of sustainable rates that are non inflationary and resource efficient 3-4%

Question 3

2. full employment

Answer 3

a job for everybody that wants to and able to work
- approach NAIRU (non accelerating inflationary rate of unemployment) 4.5%
- full use of resources maximises capacity to produce and minimise the adverse economic and social problem of unemployment

Question 4

3. price stability

Answer 4

little or no sustained, appreciable rise in the general price level
- inflation at 2-3% on average over the economic cycle as high inflation reduces value of income, competitiveness, and causes uncertainty and loss of confidence

Question 4

4. equitable income distribution

Answer 4

balance of efficiency, rewards and incentives with fairness (equity)
- policies to reduce the gap between the wealthy and those in poverty is growing world wide
- reduce welfare dependancy

Question 5

5. a more efficient resource allocation

Answer 5

structural changes
- includes technical, allocative and dynamic

Question 6

Technical efficiency

Answer 6

combining resources more productively

Question 7

Allocative efficiency

Answer 7

minimising resource waste, sending resources to where they are most useful

Question 8

Dynamic efficiency

Answer 8

ability to adapt and change over time

Question 9

main role of macroeconomic policies

Answer 9

to stabilise large fluctuations in the business cycle. policies tend to influence level of AD

Question 10

fiscal policy definition

Answer 10

a macroeconomic policy that implements government spending, taxation and the budget outcome to achieve management of the economy

Question 11

main fiscal policy tool

Answer 11

Government annual budget

Question 12

2 tools gov can use for fiscal policy

Answer 12

1. automatic stabilisers
2. discretionary measures

Question 13

automatic stabilisers do not…

Answer 13

require any gov intervention to operate

Question 14

what do automatic stabilisers do

Answer 14

boost aggregate demand during periods of recession and lower aggregate demand in a boom period when the economy expands

Question 15

example of automatic stabilisers

Answer 15

progressive income tax

Question 16

automatic stabilisers explanation

Answer 16

during a recession there are increased (welfare) claims on government spending which will increase injections, this will increase AD. hence economic growth is dampened

Question 17

discretionary measures definition

Answer 17

the deliberate manipulation of government spending and/or taxation to achieve government economic objectives

Question 18

discretionary measures example

Answer 18

building a major highway during a recession
explanation: increases injections into the economy and increase aggregate demand hence the economic low is dampened

Question 19

monetary policy purpose

Answer 19

involves action by the RBA to influence the cost and availabiloty of money in the economy

Question 20

RBA aims/objectives

Answer 20

1. stability of Australia’s currency (inflation - 2-3%)
2. reducing level of unemployment
3. promoting a sustained level of economic growth (GDP)

Question 21

what does transmission mechanism mean

Answer 21

changes in the interest rate impacts on other market rates and in turn, the components of AD

Question 22

transmission mechanism steps

Answer 22

1. RBA changes cash rate (interest rate)
2. banks respond by changing rates on loans and deposits
3. costs of borrowing and return on savings change
4. changes in interest rates causes changes in exchange rates
5. causes changes in consumption, net exports, investment
6. changes in C + I + G + (X-M) causes changes in productivity and output and employment and economic growth
7. changes in EG will effect - price of goods and services, wages and therefore inflation

Question 23

fiscal policy uses which model

Answer 23

AE 45 degree model

Question 24

monetary policy uses which model

Answer 24

AD/AS model