Flashcards
Chapter 16: The objectives and instruments of macroeconomic policy
Flashcards do conjunto (86)
- 1What is a policy objective ?A target or goal that a government wishes to achieve
- 2What is a policy instrument ?A tool, or set of tools, that a government uses to achieve one or more of the government's policy objectives.
- 3What is a supply-side policy?Includes any policy that improves an economy's productive potential and its ability to produce.
- 4What is monetary policy ?Involves changes in the base rate of interest to influence the growth of aggregate demand, the money supply, output, jobs and inflation.
- 5What is fiscal policy ?Involves the use of government spending, taxation and borrowing to affect the level and the growth of aggregate demand, output and jobs.
- 6When was monetary policy implemented and who by?Since 1997
Implemented by the UK's government agent the Bank of England - 7Who sets the policy objective for the Bank Of England to try and achieve?The government
- 8What is the main depatment for supply-side policiesThe Department Of Business, Innovation and Skills
- 9Who implements fiscal policyThe government's finance ministry- The Treasury
- 10What are the 5 main policy objectives in Keynesian order (with their targets)1. Maintain full employment or low unemployment - BEVERIDGE 3%
2. Economic growth- 2.50%
3. Acceptable and fair distribution of income and wealth.
4. To control the rate of inflation and price stability - 2% + or -
5. Satisfactory balance of payments- balance over economic cycle 0% - 11Before the free-market counter revolution, Keynesian economists believed that economic policy should be used to achieve........- Full employment
- Economic growth
- Fair distribution of income - 12Which two policy objectives did Keynesian economists believe to be intermediate ?- Inflation
- Satisfactory balance of payments - 13In the early 1980s, what threatened to escalate out of control ?Inflation
- 14In the early 1980s, which policy became priority for free-market economists?Control of inflation
- 15In the early 1980s, which policy was downgraded to a much lower economic priority ?Full employment
- 16What type of era did the early 1980s become?Monetarism
- 17In the early 1980s, macroeconomic policy revolved around...Controlling the growth of the money supply in order to control inflation
- 18Since the mid-1980s, what era died?'Death of monetarism'
- 19In 1993, what did Norman Lamont state about high unemployment ?High unemployment was a 'price well worth paying' for keeping inflation under control.
- 20In 1998, under a Labour government, the governor of the Bank Of England argued that 'job losses in the north' were what?'Job losses in the north were an acceptable price to pay for curbing inflation in the south.'
- 21What do Free-market economists argue for in order to maintain a high and sustainable level of employment ?inflation must first be brought under control
- 22What is a policy conflict ?Occurs when 2 policy objectives cannot both be achieved at the same time. Therefore, the better performance of achieving one causes a worse performance for the other.
- 23What is a trade-off between policy objectives ?When two or more desirable objectives are mutually exclusive. Governments usually do a trade-off between objectives when it may be impossible to achieve two or more objectives simultaneously.
*Policy conflicts solved through trade-offs* - 24In the UK Keynesian era, what were the 4 main conflicts between policy objectives?1) Full employment/ economic growth & satisfactory balance of payments
2) Full employment/ economic growth & controlling inflation
3) Increasing rate of economic growth & more equal distribution of income and wealth
4) Current living standards & future living standards - 25Why do some free-market economists believe that achieving an equal distribution of income & wealth can make an economy less competitive and grow slower?- Reduces entrepreneurial and personal incentives
- 26What is the ultimate objective of economic activity ?Improving economic welfare
- 27What are the penultimate objectives1) controlling inflation
2) macroeconomic stability
3) Competitive and efficient markets - 28What are the intermediate objectives?1) money supply
2) exchange rate target - 29What are the 3 main policy instruments1) Monetary Policy
2) Macro Fiscal policy
3) Micro Fiscal Policy- Supply side policy - 30What are the 3 main instruments of Macro fiscal policy and Micro fiscal policy?1) Taxes
2) Government spending
3) Governments budgetary position - 31State one way supply-side policy is used to achieve competitive and efficient markets?Incentives
- 32State the 2 main ways Monetary policy is used to achieve the money supply target and exchange rate target1) Interest Rates
2) Quantitative easing - 33What is Beveridge's definition of full employment ?Occurring when unemployment falls to 3% of the labour force
- 34In the 1950s and 1960s, where was UK unemployment in relation to Beveridge's target?Below 3%
- 35According to Beveridge, full employment was achieved during which decades ?The post-war Keynesian decades
- 36What happened to unemployment in the two recessions in early 1980s and early 1990s?Rose rapidly above the 3% target
- 37In 1986 and 1993, what figure did unemployment peak to?over 3 million
- 38In the 1990s and 2000s, what happened to unemployment and why?Unemployment fell as the UK recovered from a recession and entered a boom
- 39In 2005, what happened to unemployment? Did it meet Beveridge's definition?Fell below 5%- thus meeting his definition of full employment
- 40In 2007, unemployment was at what figure? (percentage)2.8%
- 41Due to the recession in 2008, what happened to unemployment?Unemployment rose again
- 42In 2011, unemployment peaked at what level (million) and what was the unemployment rate?2.7 million unemployed
8.4% unemployment rate - 43What is the free-market definition of full employment?Occurs in the economy's aggregate labour market at the market clearing real wage rate, where the number of workers willing to work equals the number of workers employers wish to hire.
- 44Define economic growthA long-term expansion in the country's productive potential
- 45What does the government aim to achieve in terms of economic growth (2)!) An acceptable
2) and sustainable rate of economic growth - 46What does economic growth usually create more of?Usually creates more jobs, thus decreasing unemployment
- 47What do free-market economists argue for to create the supply-side conditions in which growth is best fostered?Argue that a certain level of unemployment is needed
- 48Since Q1 of 2013, what has happened to GDP?Grown positively
- 49What happened to the rate of GDP growth between Q3 of 2013 and Q1 of 2014rate of GDP growth has fluctuated and fallen
- 50What was economic growth in Q3 of 2013?0.13%
- 51What was economic growth in Q4 of 2013?0.6%
- 52What was economic growth in Q1, Q2 and Q3 of 20141) 0.6%
2) 0.8%
3) 0.7% - 53State the 7 main benefits of economic growth1) improvements in living standards
2) More jobs
3) Accelerator effect of growth of capital investment
4) Greater business confidence
5) The fiscal 'dividend'
6) Potential environmental benefits
7) Benefits from growth driven by technological change - 54State 4 disadvantages of economic growth1) High inflation risk
2) Environmental concerns
3) Lowered sustainable rate of growth
4) Income and wealth inequality - 55What type of judgements are made when equitable considerations are introduced into economic analysis ?Normative judgements
- 56There is usually a policy conflict between distribution of income and ...Faster economic growth
- 57For sustained economic growth to be achieved, free-economists argue that people must beIncentivised, which may require greater income inequality to create conditions where people
- take financial risks
knowing that they will enjoy the benefits rather than others - 58Define inflationInflation is the persistent or continuing rise in the average price level
- 59What type of objective is controlling inflation? Why?It is an intermediate objective
- because it is a necessary condition that must be achieved to create the efficient and competitive markets required in the long run for the main policy objectives - full employment and sustained economic growth. - 60As a benefit, a steady but low inflation rate may be associated with what ?Climate of consumer and business optimism
- 61Define a 'satisfactory' balance of paymentsWhere the current account is in equilibrium, or when there is a small surplus but sustainable deficit
- 62What is a negative of a large current account surplus?Another country suffers a trading deficit
- 63Define budget deficitWhen a government's total expenditure exceeds total tax revenue. This means the government has to borrow money.
- 64State two possible ways a government might borrow money for a budget deficit1) Treasury Bills
2) Long-term government bonds - 65Define the balance of paymentsRecords financial transactions between consumers and businesses and the government in one country with others
- 66The BOP figures tell us what 2 things?- How much is being spent by consumers and firms on imported goods and services
- How successful firms have been in exporting to other countries - 67What is the current account of the balance of paymentsThe monetary value of exports and the monetary value of imports
- 68What is a current account deficit ?When the value of imports exceeds the value of exports
- 69What is current account equilibrium ?Occurs when the monetary value of exports equals the monetary value of imports.
- 70In the Mid 1970s, two massive balance of payments crises were caused by what ?Huge current account deficits
- 71To try and reduce the deficits, the government did what ?Deflate the economy - causing higher unemployment and stagnated economic growth
- 72In recent years, what has happened to the current account deficit ?Been much larger in terms of size and ratio of UK output
- 73Why is a large payments deficit no longer regarded as a problem ?Governments are generally prepared to allow market forces to determine the exchange rate
- 7430-40 years ago, the government were forced to do what to support the exchange rate ?Deflate the economy
- 75In 2006, the trade-deficit had risen to what amount ? (and % of GDP)£39.1 billion
2.9% of GDP - 76What is a policy indicator ?Provides the government with information about the state of the economy and or whether current policy is on course to achieve the governments objectives
- 77Define the money supplyThe stock of money circulating around the economy
- 78In the monetarist era (1970s and 1980s) the money supply was used as what 2 things?1) A policy instrument
2) Policy objective - 79Under monetarist theory, governments attempted to control the rate of growth of the money supply in order to control what?Inflation
- 80Was the money supply or inflation in the monetarist a policy instrument ?Money supply was a policy instrument
- 81To control the rate growth of the money supply, what was used ?Interest rates
- 82Which one is the intermediate objective, the growth of the money supply or interest rates.Growth of the money supply
- 83After the 'death of Monetarism', what 2 things was the money supply no longer?No longer a
1) Policy objective
2) Policy instrument - 84What is the money supply currently used as ?Policy indicator
- 85What does the money supply indicate ?Whether there is plenty of liquidity in the UK's financial system.
- 86Changes in the money supply provide the government and the Bank of England with information about what ?What is happening in the economy and what is likely to happen
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- A2 Economics (MACROECONOMICS) FlashCards sobre Chapter 16: The objectives and instruments of macroeconomic policy , criado por callum_j.smith em 11-12-2014.
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