2.6.1 - 2.6.4 macroeconomic objectives and policies

Question 1

economic growth has a positive impact on

Answer 1

confidence
consumption
investment
employment
incomes
living standards
government budgets

Question 2

why is the 2-3% the annual target rate of economic growth

Answer 2

-considered sustainable growth
-growth less likely to cause excessive demand pull inflation

Question 3

table of economic growth trend in the uk since 1998
1998-2007:
2008-2015:
2016-2019:
2020-:

Answer 3

1998-2007: steady growth fluctuates between 2-4%
2008-2015: global financial crisis followed by rapid bounce back due to gov intervention and steady growth
2016-2019:gradual disinflation possibly due to impact of the Brexit vote
2020-:supply chain issues due to Brexit. decreased consumption due to covid-19 and deep recession

Question 4

targets of macroeconomic objectives

Answer 4

economic growth of 2-3%
low unemployment 4-5%
low-stable rate of inflation 2%
balance of payments equilibrium on the current account

Question 5

low unemployment objective

Answer 5

close to full employment because level of frictional unemployment ,, 100% is impossible

Question 6

unemployment tends to be … to real GDP growth

Answer 6

inversely proportional

ex real GDP increases unemployment falls

Question 7

how is unemployment in the UK after global financial crisis of 2007

Answer 7

relatively high for 6 years

Question 8

different inflations require different

Answer 8

policy responses from the government

Question 9

demand pull inflation requires

Answer 9

demand-side policies

Question 10

cost push inflation requires

Answer 10

supply-side policies

Question 11

low stable rate of inflation is important as it

Answer 11

allows firms to confidently plan for the future investment
offers price stability to consumers

Question 12

BoPs for a country is a

Answer 12

record of all the financial transactions that occur between it and the rest of the world.

Question 13

current account focuses mainly on

Answer 13

financial transactions related to exports and imports of goods/services

Question 14

current account bops equilibrium
exports greater than imports

Answer 14

current account surplus

Question 15

current account bops equilibrium
exports less than imports

Answer 15

current account deficit

Question 16

uk has traditionally run a ….. current account …

Answer 16

small
deficot

Question 17

government budget is presented

Answer 17

annually and includes the forecasted revenue and expenditure

Question 18

revenues comes from

Answer 18

sale of assets, taxes, and sale revenues from government-owned goods/services

Question 19

expenditure includes

Answer 19

all gov spending such as public sector salaries, unemployment benefits, spending on public and merit goods

Question 20

any deficit has to be financed through

Answer 20

public sector borrowing

Question 21

any borrowing is added to the

Answer 21

public sector debt (gov debt)

Question 22

expenditure less than rev
expenditure greater than rev

Answer 22

budget surplus
budget deficit

Question 23

when gov debt becomes too high then lenders begin to

Answer 23

lose confidence in the government’s ability to repay debt

the government has to raise interest rate it offers to lenders which makes borrowing more expensive

Question 24

reducing the deficit can mean tough choices for the economy examples

Answer 24

cutting public sector pay
raise taxes
reduce employment
reducing spending on merit goods

Question 25

environmental protection April 2021 uk gov aim

Answer 25

environmental aim was to reduce emissions by 78% by 2035

Question 26

broader environmental aims include

Answer 26

focus on sustainability reduction of negative externalities of production 100% energy from renewable sources by 2035

Question 27

income inequality remains a high priority

Answer 27

reduction in income inequality

Question 28

high levels of income inequality creates

Answer 28

social unrest and ,, can lead to revolutions

Question 29

income inequality is measured using

Answer 29

gini coeficient

Question 30

most developed economies have gini target of

Answer 30

0.3-0.4

Question 31

perfect income equality is not desirable as

Answer 31

it removes the incentive to work and study

Question 32

unchecked capitalism has a natural outcome of

Answer 32

high income inequality

Question 33

demand side policies aim to

Answer 33

shift AD in an economy

Question 34

two categories of demand side policies

Answer 34

fiscal policy monetary policy

Question 35

fiscal policy involves

Answer 35

the use of movement spending and taxation to influence AD

Question 36

who is responsible for setting fiscal policy

Answer 36

government

Question 37

monetary policy involves

Answer 37

adjusting interest rates and the money supply so as to influence AD

Question 38

who sets monetary policy independent of government

Answer 38

bank of England (UK central bank)

Question 39

bank's monetary policy committee meets --- times a year to set policy

Answer 39

8

Question 40

two main instruments of monetary policy include

Answer 40

incremental adjustments to the interest rate quantitive easing

Question 41

what is quantitive easing

Answer 41

increases the supply of money in the economy

Question 42

what is transmission mechanism

Answer 42

when a policy decision is made it creates a ripple effect through the economy

Question 43

reasons when qe is used when

Answer 43

willingness of banks to lend money is low low availability of credit low consumer confidence