Flashcards in 2.6 Introduction to Macroeconomic Objectives Deck (28)
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1
Define what is meant by macroeconomic objectives
Where the government aim to create economic stability and remain on the long-term growth rate
2
Define the term macreconomics
The branch of economics concerned with large-scale or general economic factors, such as interest rates and national productivity
3
What are the 4 macroeconomic objectives?
- Stable Inflation
- Falling Unemployment
- Economic Growth
- Balance of Payments
4
What is the target inflation rate?
2%
5
How is inflation controlled by the government?
The Bank of England change the interest rate to keep it at 2%
6
Why does unemployment mean the economy is not working at its full capacity?
Labour is a factor of production therefore not all factors are being used to their full potential
7
How is economic growth measured?
GDP change over time
8
Define aggregate supply
The total quantity of output in the economy at a given price level
9
Define aggregate demand
The total demand for goods and services in the economy over a period of time
10
Where on the AS graph is there spare capacity in the economy?
On the left
11
Where on the AS graph are all resources fully available?
On the right
12
What is fiscal policy?
The use of government spending through taxation and borrowing to influence the pattern of economic activity
13
What is the formula for AD?
C + I + G + (X - M)
14
Give 2 general advanatges of fiscal policy
- Has a small time lag
- Can also boost AS
15
What economic measure does fiscal policy have an effect on?
Aggregate Demand
16
Give 3 general disadvantages of fiscal policy
- Causes Demand-Pull inflation
- Government spending causes a budget deficit
- Results may not be as expected
17
Give an evaluation point on why fiscal policy may not be good in certain circumstances
Will not boost GDP if the economy in near full capacity
18
What is monetary policy?
Changes in the interest rate, the supply of money and credit and exchange rates to influence economic activity
19
What does an increase in the interest rate cause in terms of the exchange rate of the domestic currency?
Appreciation
20
What does a decrease in the interest rate cause in terms of the exchange rate of the domestic currency?
Depreciation
21
What is meant by exchange rate policy?
Manipulating the exchange rates to help them meet macroeconomic objectives
22
How do the government have control of the exchange rates?
Through the bank of England who set the interest rate
23
What is meant by a 'floating exchange rate'?
Where the exchange rate is left to its own devices to be decided by supply and demand
24
Why do the government not really have control of the interest rate?
Because it is controlled by the BOE who are a separate entity
25
Give 2 general advantages of using supply-side polices
- Sustainable economic growth
- Antiflationary
26
Give 3 general disadvantages of using supply-side policies
- Time lag
- Not sustainable if the economy is at a high capacity
- Very expensive
27
What does the Phillips Curve show?
Unemployment = Inflation
28
