Macroeconomic Objectives

Question 1

What are the 4 main macroeconomic objectives?

Answer 1

Economic Growth- can increase living standards and increase money in the economy.

Low Unemployment- gov aims for 3%

Low Inflation- gov target of 2%

Satisfactory balance of payments- Equilibrium within the current account

Question 2

What is the trade of between economic growth and inflation?

Answer 2

Growing economy means more spending and money in the economy. This can lead to inflationary pressure on the average price level.

Question 3

What is the trade of between economic growth and the current account?

Answer 3

Growing economy means consumers are more likely to spend on imports. The current account deficit gets worse if the countries exports are low.

Question 4

What is the trade of between gov budget deficit and economic growth?

Answer 4

Government will need more money so they increase tax revenue. Consumers have less money now so spending decreases, reducing AD. This slows down economic growth.

Question 5

What is the trade of between unemployment and inflation when theres economic growth?

Answer 5

When theres economic growth, unemployment falls. However, wages will start to rise due to the growth. Now more people are earning money and those who were already employed are earning more. This leads to spending which can cause inflation.

Philips curve demonstrates this.

Question 6

What is GDP and real GDP?

Answer 6

GDP measures the value quantity of goods and services produced in an economy.
Real GDP is the value of GDP adjusted for inflation.

Question 7

What is the Consumer Price Index?

Answer 7

Measures purchasing power with the family expenditure survey. This analyses trends in items purchased.

Question 8

What is the Retail Price Index?

Answer 8

This is the same as CPI but also considers other variables like housing costs.