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Questions and Answers
What is the likely impact of increased interest rates on the balance of payments?
What is the likely impact of increased interest rates on the balance of payments?
What is a potential long-term effect of successful supply-side policies?
What is a potential long-term effect of successful supply-side policies?
How can reducing government spending and increasing taxes to reduce fiscal deficits impact income equality?
How can reducing government spending and increasing taxes to reduce fiscal deficits impact income equality?
How might lower interest rates affect income distribution?
How might lower interest rates affect income distribution?
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Which of these is NOT an intended effect of supply-side policies?
Which of these is NOT an intended effect of supply-side policies?
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What is a potential consequence of rapid economic growth as seen in China?
What is a potential consequence of rapid economic growth as seen in China?
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Why might India be experiencing balance of payments issues despite rapid economic growth?
Why might India be experiencing balance of payments issues despite rapid economic growth?
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What does the Phillips curve suggest about the relationship between unemployment and inflation?
What does the Phillips curve suggest about the relationship between unemployment and inflation?
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What economic condition challenged the validity of the Phillips curve in the 1970s?
What economic condition challenged the validity of the Phillips curve in the 1970s?
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What is a likely consequence of expansionary economic policies?
What is a likely consequence of expansionary economic policies?
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What is a typical effect of deflationary policies?
What is a typical effect of deflationary policies?
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What is the potential adverse consequence of continuously high interest rates?
What is the potential adverse consequence of continuously high interest rates?
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How does high employment affect businesses and wages according to the provided information?
How does high employment affect businesses and wages according to the provided information?
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What is the approximate long-run trend of economic growth targeted by the UK government?
What is the approximate long-run trend of economic growth targeted by the UK government?
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For the UK, what is the target rate for unemployment, accounting for frictional unemployment?
For the UK, what is the target rate for unemployment, accounting for frictional unemployment?
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Which of the following best describes the UK government's target for inflation, as measured by the CPI?
Which of the following best describes the UK government's target for inflation, as measured by the CPI?
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Which statement reflects the importance of balance of payments equilibrium on the current account?
Which statement reflects the importance of balance of payments equilibrium on the current account?
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If the UK inflation rate falls 1% outside of the target range, what action is required?
If the UK inflation rate falls 1% outside of the target range, what action is required?
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Which of the following is NOT a typical aim of a government's macroeconomic objectives?
Which of the following is NOT a typical aim of a government's macroeconomic objectives?
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Why is a balanced government budget a key macroeconomic objective?
Why is a balanced government budget a key macroeconomic objective?
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What is the main purpose of the macroeconomic objective of greater income equality?
What is the main purpose of the macroeconomic objective of greater income equality?
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Study Notes
Edexcel Economics (A) A-Level - Theme 2: The UK Economy - Performance and Policies - 2.6 Macroeconomic Objectives and Policies
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Governments intervene in the economy to improve economic performance. Key objectives include:
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Economic Growth: A long-run trend of around 2.5% in the UK. Governments aim for sustainable growth, sometimes prioritizing development over growth in emerging economies.
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Low Unemployment: Targeting an unemployment rate around 3%. Frictional unemployment is accounted for.
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Low and Stable Inflation: The UK target is 2% measured using CPI. This promotes price stability for firms and consumers.
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Balance of Payment Equilibrium: Maintaining a sustainable current account balance is crucial for long-term economic growth.
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Balance Government Budget: Controlling government borrowing and ensuring debt doesn't escalate.
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Protection of the Environment: Sustainable use of resources to avoid exploiting them for future generations.
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Greater Income Equality: Reducing the gap between rich and poor.
2.6.2 Demand-Side Policies
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Demand-side policies: Manipulate consumer demand. Expansionary policies increase AD to boost growth, while deflationary policies decrease AD to control inflation.
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Monetary Policy: Central banks control AD by adjusting base interest rates or the money supply.
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Interest Rates: The MPC changes the official base rate (repo rate) to manage inflation. A rise in interest rates reduces AD due to higher borrowing costs, reduced investment and consumption, and increased savings. This also reduces demand for assets like stocks and shares and has a negative wealth effect.
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Quantitative Easing: The Bank of England buys assets to increase the money supply and reduce pressure on banks. This is used in times of low demand.
2.6.3 Supply-Side Policies
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Supply-side policies: Focus on increasing the productive potential of the economy (shifting the LRAS curve to the right).
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Market-based policies: Aim to remove barriers to market efficiency, like high prices or labor shortages.
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Interventionist policies: Correct market failures, such as under-provision of education or investment in infrastructure.
2.6.4 Conflicts and Trade-offs
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Economic objectives: Often conflict. Growth might lead to environmental damage, while policies to control inflation might lead to higher unemployment. Other trade-offs exist between growth, income equality and inflation.
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Policy conflicts: Expansionary policies (increasing AD) often lead to inflation, while contractionary policies (decreasing AD) can cause unemployment.
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Description
Test your understanding of the key macroeconomic objectives and policies discussed in the Edexcel A-Level Economics Theme 2. Topics include economic growth, unemployment, inflation, and governmental balance. Prepare to explore sustainable approaches for a balanced economy.