Macro Objectives

Question 1

What are the Macro Objectives?

Answer 1

1. Price stability
2. Steady growth of Real GDP
3. Falling unemployment
4. High standard of living
5. Stable balance of payments
6. Equitable distribution of wealth

Question 2

What is the short run phillips curve?

Answer 2

• Shows the relationship between unemployment and inflation.
• High inflation = low unemployment

Question 3

Quantitative Easing?

Answer 3

• A monetary policy tool where central banks buy financial assets such as government bonds to inject money within the circuar flow of income.
• The increased money supply makes funds for lending more available, resulting in increased borrowing and more investment.

Question 4

How do government bonds work?

Answer 4

• Government sells bonds to investors
• The bond states a value which the government will pay you upon maturity.
• When bond reaches it’s maturity date, the government repays the full value
• Government uses this to finance infrastructure and investment
• As interest rates rise, the yield of a bond increases

Question 5

What is the distinction between a fiscal deficit and surplus?

Answer 5

Deficit = Gov expenditure exceeds tax revenue

Surplus = Tax revenue exceeds gov expenditure

Question 6

What is the role of the Bank of England’s Monetary Policy Committee?

Answer 6

• Setting the bank rate (the interest rate which the Bank of England lends to commercial banks)
• Setting inflation target
• Purchasing government bonds

Question 7

What is the Great Depression and how did demand side policies affect this?

Answer 7

• A severe global economic downturn that lasted from 1929 to the late 1930s.
• Excessive investment in overvalued stocks
• Poor regulation
• Protectionist policies
• Overproduction

Question 8

What is the 2008 global financial crisis?

Answer 8

Banks issued risky loans to borrowers with poor credit history, leading to widespread defaults when house prices fell.