Macroeconomic Objectives & Policies 2.6 Flashcards
(22 cards)
What is the definition of Economic Growth?
The increase in production of goods & services in an economy over a period of time, usually measured through a % increase in GDP.
What are the benefits of economic growth?
Higher living standards: due to increased incomes and lower levels of poverty.
Reduced unemployment: due to the formation of jobs as firms expand.
What are the costs of economic growth?
Inflation: in the case that economic growth is too rapid and uncontrolled.
Environmental Impacts: expansion of firms may require fossil fuels or deforestation, harming species and the environment as a whole.
What is the definition of low unemployment?
A large proportion of the labor force is employed, leading to higher overall incomes and increased production in the economy.
The target is usually below 5%
What are the benefits of low unemployment?
Higher income: as more people earn wages, contributing to a higher standard of living.
Social stability: reduced poverty and social unrest.
What are the costs of low unemployment?
Inflation: Low unemployment may drive wages up (more people have steady wages & disposable incomes, increasing demand which increases prices).
Skill Mismatches: job types change over time and workers can be made redundant (not useful) as they won’t have the skills needed.
What is the definition of Low and Stable Rate of Inflation?
This is when the prices of goods and services rise slowly and predictably over time.
The target rate of inflation for the UK is 2%
What are the benefits of a Low and Stable Rate of Inflation?
Predictability: as it helps businesses plan for future investments and consumers for future expenditure.
Maintained purchasing power: protecting consumer savings.
What are the costs to a Low and Stable Rate of Inflation?
Interest Rates: low inflation may lead to low interest rates, which may not always lead to investment (as firms believe that prices will remain stagnant/ the same).
Deflation risk: if inflation is too low, the economy may go into deflation (as consumption and investment is low, which reduces economic growth).
What is the definition of a Balance of Payments Equilibrium on Current Account?
When the value of exports of goods and services is equal to the value of imports.
This avoids trade deficits or surpluses.
What are the benefits of a Balance of Payments Equilibrium on Current Account?
Economic Stability: avoids reliance on foreign debt.
Currency/ Exchange Rate Stability: avoids large fluctuations in currency value (in the case of currency appreciation making exports more expensive and vice versa).
What are the costs of a Balance of Payments Equilibrium on Current Account?
Export Dependency: a high focus on exports can make the economy vulnerable to global downturns.
Sacrificed domestic consumption: may require reduced domestic consumption to maintain the balance.
What is the definition of a Balanced Government Budget?
When government revenue equals government expenditure over a fiscal period.
What are the benefits of a Balanced Government Budget?
Investor Confidence: attracts foreign investment by showing fiscal responsibility.
Debt Control: prevents the accumulation of national debt.
What are the costs of a Balanced Government Budget?
Public services: may require cuts in public services or higher taxes.
Flexibility: reduces the economy’s ability to respond to crises.
What is the definition of Protecting the Environment
Policies aimed at reducing pollution, conserving natural resources and engaging in sustainable practices.
What are the benefits of Protecting the Environment?
Sustainable Development: ensures that resources are available for future generations.
Health benefits: reduces the risk of pollution-related diseases, therefore reducing healthcare costs.
What are the costs of Protecting the Environment
Economic trade-offs: environmental regulations can increase production costs.
Competitive Disadvantages: stricter regulations can decrease international competitiveness for domestic firms.
What is the definition of Greater Income Equality?
A more equitable distribution of income across society, reducing the gap between the higher and lower-income individuals.
What are the benefits of Greater Income Equality?
Social Cohesion: reduces social tensions and promotes fairness.
Economic stability: more equitable societies tend to have more stable economies, also reducing the possibility of strikes by trade unions.
What are the costs of Greater Income Equality?
Incentives: high redistribution may reduce incentives to work and invest.
Government Spending: requires significant government intervention and spending.
Possible Essay-style Questions
Discuss the benefits and challenges of achieving low and stable inflation in modern economies.
Evaluate the importance of environmental protection as a macroeconomic objective in the context of economic growth.
Analyze the trade-offs between achieving greater income equality and maintaining economic incentives for productivity and investment.
Examine the role of government policies in balancing the current account and its impact on the overall economy.
