Economic Objevtives

Question 1

Economics growth

Answer 1

An increase in real GDP over time
- measured by % change in GDP
- often linked with improved living standards and high incomes

Question 2

Low unemployment

Answer 2

Reducing the number of people who are willing and able to work but cannot find jobs
- measured by unemployment rate
- natural unemployment (frictional + structural) is inevitable

Question 3

Low and stable inflation

Answer 3

Maintaining inflation (typically CPI) around 2%
- hyperinflation or deflation is harmful
- central banks may use monetary policy to control this

Question 4

Equitable distribution of income

Answer 4

Reducing excessive income inequality in society
- measured using Lorenz curve and gini coefficient

Question 5

External stability

Answer 5

Avoiding large trade deficits or excessive foreign debt
- measured by current account balance, exchange rate stability

Question 6

The Phillips curve

Answer 6

Shows trade off between inflation and unemployment in the short run

Question 7

SR Phillips curve

Answer 7

• downward sloping
• when unemployment falls, inflation tends to rise (more spending = demand - pull inflation)
• suggests a trade off between inflation and unemployment

Question 8

LR phillips curve

Answer 8

• vertical line at natural rate of unemployment
• suggests no long term trade off - trying to Lower unemployment below natural rate causes quicker inflation

Question 9

Lorenz curve

Answer 9

Used to show income distribution in an economy
- X-axis : % of households/population
- Y-axis : % of income
- the further the curve is from the 45 degree line of inequality, more unequal the distribution is

Question 10

Gini coefficient

Answer 10

• A = area between line of inequality and Lorenz curve
• Gini = A / (A+B)
• Gini = 0 = perfect inequality
• Gini = 1 = total inequality