topic 7 Flashcards
(15 cards)
what are the core government policy objectives?
- increased rate of economic growth
- control of inflation
- a reduction in unemployment
- restoration of equilibrium in the balance of payments
what are the two additional objectives ?
-making the distribution of income more equal
-protection of the environment
what is GDP?
a measure of the economic activity carried out in the domestic economy over a period of time and is the value of all the goods and services produced by factors of production based in a country during a particular year
what is inflation?
a rise in the average price level in an economy
why might governments aim to achieve inflation rate at or below the level of their competitors?
the country can maintain its international competitiveness, as exports will be relatively cheaper for other countries
encourages investment as business confidence increases
what is cost-push inflation?
inflation initiated by an increase in costs faced by firms
draw the graph for cost push inflation
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what id demand-pull inflation?
inflation initiated by an increase in aggregate demand
draw the graph for demand pull inflation
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what are costs of inflation ?
- Increasing costs
2.shoe leather costs - menu costs
- wage negotiating
- Reduced purchasing power
- Uncompetitveness
7.Unrealiable signals for resource allocation
what is current account deficit?
people purchasing more imported goods than the economy is exporting (X-M)
what is sustainable economic growth?
economic growth that does not endanger the quality of life for future generations
what is a trade-off?
conflict between lower unemployment and lower inflation
what is the Philip curve ?
relationship suggesting that there is a trade-off between unemployment and inflation
what is stagflation?
a period when the economy experiences negative economic growth, high unemployment and high inflation.
