The objectives of government economic policy Flashcards
(22 cards)
What is Economic Growth?
A central macroeconomic aim of most governments
What are the macroeconomic objectives?
- Stable balance of payments on the current account
- Minimise unemployment
- Economic growth
- Equity in the distribution of income
- Balancing the government budget
- Environmental protection
Growth at the rate of 2-3% is less likely to cause what?
Demand pull inflation
On what does economic growth have positive effects on?
- Confidence
- Consumption
- Investment
- Employment
- Incomes
- Living standards
- Government budgets
Strong economic growth means what?
- Higher incomes
- Lower unemployment rates
- Better government budgets
Sustainable economic growth will have what?
Less demand-pull inflationary pressures or excessive environmental pressure
An increase in real GDP shows what?
The economy is expanding and unemployment is decreasing
A fall in real GDP shows what?
The economy is deflating and unemployment is rising
What is the UKs target inflation rate?
2%
What do demand-side policies do?
Ease demand-pull inflation
What do supply-side policies do?
Ease cost push inflation
What is the CPI?
Consumer Price Index - a measure of the overall cost of the goods and services bought by a typical consumer
What is the UKs target unemployment rate?
4-5%
What is The Balance of Payments (BoP)?
A record of all the financial transactions that occur between it and the rest of the world over a period of time (imports/exports)
What does exports>imports cause?
A current account surplus
What does imports>exports cause?
A current account deficit
Examples of Government revenue
Sale of state assets: water, electricity
Taxes: VAT, corporation tax, carbon tax
Sales revenue from goods or services, e.g. train tickets
Examples of Government expenditure
Government spending, such as public sector salaries
Unemployment benefits
Spending on public and merit goods
What does expenditure>revenue cause?
A budget deficit which has to be financed through public-sector borrowing, which then gets added to public sector debt (government debt)
If the UK government’s debt becomes too high….
….then lenders begin to lose confidence in the Government’s ability to repay the debt so The Government then has to raise the interest rate it offers to lenders, which makes borrowing more expensive
How can you reduce the government debt?
Cutting public sector pay, raising taxes, reducing unemployment benefits, reducing spending on merit goods
Equitable distribution ensures….
…fairness and allows the same opportunities for everyone
