Econ - 4.1

Question 1

role of government - definition

Answer 1

• to improve general welfare of its people
• collects tax revenue in order to fund for its expenditure

Question 2

3 levels of operation for governments

Answer 2

1. local
2. national
3. international

Question 3

local role

Answer 3

• collects taxes to fund local survices
• eg. rubbish colelction, street lighting, schools, hospitals

Question 4

national role

Answer 4

• how to achieve macroeconomic aims

Question 5

international role

Answer 5

• international dimension as modern economies need to trade with other countries
• economy may need to be apart of a trading bloc

Question 6

5 macroeconomic aims

Answer 6

1. economic growth
2. full employment / low unemployment
3. price stability
4. balance of payment stability
5. redistribution of income

Question 7

economic growth - macroeconomic aims

Answer 7

• increase in a country’s GDP over time
  process : more goods / services => more jobs => more income => improves living standers

Question 8

full employment / low unemployment -macroeconomic aims

Answer 8

• aim is to have as many people as possible working
• low unemployment (reduced proverty)

process: more jobs => more spending => higher output => better living standerds

Question 9

price stability - macroeconomic aims

Answer 9

• low & stable inflation
• stable prices protect peoples purchasing powers and help businesses plans

process: stable prices => people can plan, save & invest confidently => money keeps its value

Question 10

balance of payments stability - macroeconomic aims

Answer 10

• exports = imports
• stable balance avoids too much debt / currency problems

process: equal imports & exports => steady flow of money => stable currency => healthy trade relationships

Question 11

redistribution of income / wealth - macroeconomic aims

Answer 11

• aims to reduce income inequality (for decent standard of living)
• helps maintain social stability & fairness
  process: lower income gap => more equal opportunities => higher social stability

Question 12

full employment vs stable prices

Answer 12

expanded economy => more jobs => more income => more purchasing power

BUT demand-pull inflation => increased prices
OR cost-push inflation => unable to find skilled workers from full employment

Question 13

economic growth vs balance of payments stability

Answer 13

high consumption expenditure => increase in imports => increase in inflation FROM ECONOMIC GROWTH => increases exporting prices => making country’s exports less price competitive

Question 14

full employment vs balance of payments stability

Answer 14

possible wage rises => cost-push inflation => country’s exports become less competitive

Question 15

economic growth vs stable prices

Answer 15

governments want to stimulate economic growth => cuts interest rates => consumers have more income => increased borrowing / firms can raise their expenses => can cause demand-pull inflation