2.1.1 Objectives of government economic policy

Question 1

What are the 4 variables that are used to measure national economic performance?

Answer 1

• Economic growth
• Unemployment
• Inflation
• Balance of payments

Question 2

1A. Economic Growth

What does economic growth measure?

Answer 2

a countries output

Question 3

1B. Economic growth

Name 5 benefits which economic growth causes

Answer 3

• More job opportunities
• Higher incomes
• Improved standards of living
• Improved international competitiveness of the UK economy
• Multiplier and accelerator benefits
• Improved confidence for:
  * consumers to spend
  * businesses to invest
• Government spend less on job seekers allowance and associated benefits
• Tax revenues likely to increase allowing government to reinvest more money in infrastructure / public services

Question 4

1C. Economic growth

What does GDP stand for and what does it measure?

Answer 4

Gross Domestic Product (GDP)

It measures the total of a countries output over 1 year

Question 5

2A. Unemployment

High unemployment normally represents …?

Answer 5

poor economic performance

Question 6

2B. Unemployment

Economies that have strong economic growth are likely to have

Answer 6

low unemployment

Question 7

2C. Unemployment

Name 5 benefits of low unemployment

Answer 7

• Higher consumption and aggregate demand
• Higher incomes
• Improved standards of living
• Higher tax revenue for government
• Lower government spending on unemployment related welfare
• Improved productivity of UK economy
• Reduced poverty (absolute and relative)
• Social benefits (reduced crime, improved wellbeing)

Question 8

3A. Inflation

Inflation is the … and is measured by (…)?

Answer 8

Inflation is the rate of change of average prices in an economy and is measured by CPI (consumer price index)

Question 9

3B. Inflation

What is the inflation target and who sets it?

Answer 9

2% and BOE (Bank of England)

Question 10

3C. Inflation

What is the main target of inflation and what number is inflation aimed to be maintained by?

Answer 10

Main inflation target : Price Stability
Maintained by : +/- 1%

Question 11

4A. Balance of payments

What does balance of payments measure?

Answer 11

The UK’s activities with other economies

Question 12

4B. Balance of payments

1. If imports are greater exports =
2. If exports are greater than imports =

Answer 12

1. Deficit
2. Surplus

Question 13

4C. Balance of payments

What are 2 benefits of imported goods?

Answer 13

1. Cheaper prices
2. Higher quality goods / services