Macro: Objectives and Conflicts Flashcards
(18 cards)
What are the five main macroeconomic objectives prioritized by the UK government?
- Sustainable economic growth
- Price stability
- Low unemployment
- Balanced government budget
- Balance of payments equilibrium
These objectives guide government policy and economic planning in the UK.
How is economic growth measured?
By an increase in real GDP (Gross Domestic Product)
Real GDP reflects the economic productivity of a country, adjusted for inflation.
What is the UK government’s inflation target?
2.0%
Inflation is measured using the Consumer Prices Index (CPI).
What does low unemployment aim to achieve in an economy?
Minimise the number of unemployed individuals and efficiently utilize labor resources
High unemployment can strain welfare systems and reduce funds for other sectors.
What is a budget deficit?
When government spending exceeds tax revenue (G > T)
Prolonged deficits can lead to increased national debt.
What is the goal of achieving a balanced government budget?
To ensure government spending equals tax revenue (G = T) and manage national debt
A budget surplus allows for debt reduction.
What does the current account measure in the balance of payments?
The value of exports compared to imports of goods and services
A deficit means more money is leaving the economy than entering.
What is one argument for income equality in economic policy?
Large inequalities are unfair and harmful to social cohesion
Redistribution methods include higher taxes on the wealthy to fund public services.
What is environmental sustainability in the context of macroeconomic objectives?
Considering environmental impacts in economic policy-making
Agreements like the Kyoto Protocol aim to reduce greenhouse gas emissions.
True or False: Economic growth can conflict with environmental sustainability.
True
Increased industrialization often leads to greater environmental damage.
What is one potential conflict between economic growth and the current account of the balance of payments?
Rapid growth may lead to increased imports, worsening the current account
In contrast, export-led growth can improve the current account.
How can raising interest rates to reduce inflation affect income distribution?
It may increase returns for the wealthy while worsening conditions for the poor
Higher interest rates increase borrowing costs, impacting those with debt more severely.
Fill in the blank: A persistent increase in prices is called _______.
[inflation]
What may happen if an economy grows quickly, as in India?
It may lead to increased imports due to rising consumer incomes
This can reduce the incentive for exporters to sell abroad.
What is the effect of expansionary fiscal policy on aggregate demand (AD)?
It increases aggregate demand
This can lead to potential conflicts with other macroeconomic objectives.
What is an example of expansionary fiscal policy?
An income tax cut or an increase in government spending.
These measures aim to increase aggregate demand (AD).
What happens to the price level with expansionary fiscal policy? Show this on a Keynesian LRAS.
The price level increases, leading to inflation.
This is represented as an increase from P to P1.
What is the effect of expansionary fiscal policy on Real GDP? (Use Keynesian digram)
Real GDP increases from Y to Y1, indicating economic growth.
Y1 is closer to full employment output (Yfe), resulting in a reduction in unemployment.
