Topic 2.2 - Government Objectives

Question 1

Name the main economic objectives of the government

Answer 1

B - Balance of payments
U - Unemployment
G - Growth
S - Price Stability

Question 2

Explain the government objective of unemployment

Answer 2

The government wants to minimise unemployment and have full employment. This means that all those actively looking for employment can find a job

Question 3

What is the unemployment rate

Answer 3

The aim is that less than 3% of the population who are willing and able to work are unemployed

Question 4

Explain the government objective of price stability

Answer 4

They want prices to be generally stable
As it provides stability for firms and consumers
Sudden and severe price changes can cause uncertainty and a reduction in the total demand and supply

Question 5

What is the inflation target

Answer 5

2%

Question 6

Explain the economic objective of growth

Answer 6

The aim is that economic growth is sustainable and aims to give people a better standard of living

Question 7

Define economic growth

Answer 7

An increase in a country’s production of goods and services over a period of time

Question 8

Explain the government objective of balance of payments

Answer 8

It refers to financial transactions between the UK and other countries over a period of time
This means that the value of exports is equal to the value of imports

Question 9

Name the other government objectives and what they are

Answer 9

Reducing inequality - Income and wealth should be distributed evenly so that the gap between rich and poor is not extreme
Managing environmental change - economic activity can lead to negative externalities and the government wants less of this to happen

Question 10

What conflicts between objectives are there

Answer 10

Economic growth vs price stability
Economic growth vs balance of payments
Full employment vs price stability
Economic growth vs inequality
Economic growth vs environmental change

Question 11

How is economic growth measured

Answer 11

By GDP

Question 12

Benefits of high GDP

Answer 12

A rise in consumption
A reduction in unemployment

Question 13

What happens if economic growth is too high

Answer 13

may lead to inflation

Question 14

How is economic growth caused

Answer 14

Through changes to demand and supply:
- Increase in size of the factors of production can increase the productivity of the economy
- Increase in the productivity of factors of production
- Monetary and fiscal policy changes

Question 15

Define GDP

Answer 15

The value of goods and services produced within an economy

Question 16

Define real GDP

Answer 16

It’s the value of goods and services produced within an economy within one year taking into account inflation

Question 17

Difference between GDP and real GDP

Answer 17

Real GDP takes into account the inflation of the economy

Question 18

Define real GDP per capita

Answer 18

It is the value of goods and services produced within an economy within one year divided by the country’s population taking into account inflation

Question 19

Formula for real GDP

Answer 19

Real GDP = GDP / (1+inflation rate as a decimal)

Question 20

Formula for GDP per capita

Answer 20

find out the GDP and divide it by the population

Question 21

Government policies to achieve economic growth

Answer 21

Supply side policies
Monetary policies
Fiscal policies
Government grands
Reducing benefits
Education and training

Question 22

Why does the government want high employment

Answer 22

Because being employed earns wages, which generates tax revenue through income tax

Question 23

Define structural unemployment

Answer 23

Caused by changes to the structure of an economy as demand for the job declines then the industry declines and people become unemployed

Question 24

Define seasonal unemployment

Answer 24

Occurs during certain points in the year as labour is only demanded at certain times of the year

Question 25

Define frictional unemployment

Answer 25

This refers to the time when an individual leaves a job and is looking for another job. This is common and usually temporary

Question 26

Define cyclical unemployment

Answer 26

This occurs during periods of economic decline or recessions. Problems in the economy can lead to reductions in the total demand and therefore firms will make staff redundant because they are no longer needed

Question 27

How is unemployment measured

Answer 27

By the Claimant Count or the Labour Force survey

Question 28

What is the claimant count

Answer 28

It measures the number of people claiming unemployment benefits. To claim a job-seekers allowance you must prove that you are actively looking for work and that you claim any job that is offered.

Question 29

What is the formula for the claimant count

Answer 29

Claimant count = number of people unemployed // labour force x 100

Question 30

What is the labour force survey

Answer 30

A self report survey which asks people if they: - are without a job for at least 4 weeks - actively seeking work - available to start work within the next 2 weeks

Question 31

How is unemployment reduced

Answer 31

Fiscal policy Monetary policy Supply side policies: education and training Reducing benefits

Question 32

Define inflation

Answer 32

A general increase in the average price level over time. This means the cost of living increases and the purchasing power decreases

Question 33

Define disinflation

Answer 33

The falling rate of inflation

Question 34

What is demand pull inflation

Answer 34

When the level of demand in economy is growing unsustainably and quicker than production capacity so firms respond by increasing prices.

Question 35

When can demand pull inflation occur

Answer 35

When consumers have higher incomes to buy more goods and services usually during the recovery or boom stages of the economic growth

Question 36

Causes of demand pull inflation

Answer 36

A fall in the exchange rate causes imports to be more expensive so demand in the country will rise Fiscal policies can give consumers more disposable income Lower interest rates make saving less profitable and borrowing more attractive so consumer spending will rise

Question 37

What is cost push inflation

Answer 37

An increase in the level of prices caused by rises in the cost of production. This then affects workers who struggle to afford goods and services on their current wages so demand raises. Firms agree which increases the costs of production. Leading to a wage-price spiral

Question 38

Causes of cost push inflation

Answer 38

Higher prices of commodities as all firms will see a rise in cost A fall in exchange rates causes imports to be more expensive, increasing the costs of production as raw materials cost more Higher wages - trade unions cause labour to be more expensive Higher taxes could lead to firms passing on extra costs to consumers Monopolies can exploit consumers with higher prices

Question 39

Government policies to manage inflation

Answer 39

Fiscal policy - increase taxes Monetary policy - increase interest rates Supply side policies - privatisation and reduce power of trade unions

Question 40

What is the Balance of Payments

Answer 40

A record of all financial transactions made between the UK and the rest of the world.

Question 41

What is the Balance of Trade

Answer 41

Part of the current account which records sales and purchase of physical goods between the UK and the rest of the world

Question 42

Define exports

Answer 42

Goods and services sold to foreign countries from the UK and are positive in the balance of payments

Question 43

Define imports

Answer 43

Goods and services bought from foreign countries from the UK and are negative in the balance of payments

Question 44

When does a balance of payments deficit occur

Answer 44

When the value of the UK's exports of goods and services is less than the value of imported goods and services

Question 45

Why is a balance of payments deficit bad

Answer 45

If it happens for a long period of time there could be financial difficulties because the government will need to increase borrowing so taxes will rise.

Question 46

When does a balance of payments surplus occur

Answer 46

When the value of UK's imports is more than the value of exported goods and services

Question 47

Causes of balance of payments deficit or surplus

Answer 47

Status of the currency Economic growth Competitivity Deindustrialisation Membership in trade unions Attractiveness of foreign investors Inflation

Question 48

Government policies to influence the BOP

Answer 48

Fiscal policy - increase taxes Monetary policy - lower interest rates or raise them Supply side policies - to increase productivity

Question 49

When does income equality occur

Answer 49

When there is an unequal distribution of income across the economy The government try to bridge the gap between the rich and poor through the welfare state

Question 50

Causes of income inequality

Answer 50

Uneven distribution of assets Age Labour market Reliance on benefits Gender Tax status Inequality in wealth

Question 51

Define wealth

Answer 51

It refers to a "stock" of money which includes cash in a bank account or valuable assets

Question 52

Causes of wealth inequality

Answer 52

Inheritance status Savings Investments Taxes

Question 53

Consequences of income and wealth inequality

Answer 53

Poverty Housing Education Health Social problems Lower economic growth

Question 54

Benefits of income and wealth inequality

Answer 54

Incentives Trickle down effect

Question 55

Government policies to redistribute income and wealth

Answer 55

Minimum wage Benefits Fiscal policy - reduce taxes Monetary policy - cut interest rates