2.6
MACROECONOMIC OBJECTIVES
Trade offs - when one macro economic objective is achieved, but it worsens the
performance on another objective
ECONOMIC GROWTH
an increase in the production of goods and services over time, shown by an
increase in real GDP
benefits
higher living standards - increased income and quality of life
employment - more job opportunities as economy expands
costs
inflation- rapid growth leads to rising prices
environmental damage - increase production damages environment
LOW UNEMPLOYMENT
when a large proportion of the economically active are employed
benefits
higher income - more people earning more wages
social stability - reduced poverty and social unrest
costs
inflation - higher wages, more demand, higher prices
skill mismatches
LOW AND STABLE INFLATION
prices of goods and services rise slowly and predictably over time
2.6 1
, benefits
predictability allows for businesses to plan for the future
higher purchasing power - consumers savings remain
costs
low inflation leads to low interest rates - does not stimulate investment
if inflation is too low, economy may lead to deflation
low economic growth
CURRENT ACCOUNT EQUILIBRIUM
when the value of goods and services exported is equal to the value of imports,
avoiding large deficits or surpluses.
benefits
reduces the reliance on foreign debt
exchange rate has stability
costs
too many exports can make the economy vulnerable to global downturns
may have to reduce domestic consumption to balance
BALANCED GOVERNMENT BUDGET
when government expenditure is equal to government revenue over time
benefits
prevents accumulation of debt
attracts foreign investment
costs
may require cuts in public services or higher taxes
reduces ability of gov to respond to economic shocks
2.6 2
, ENVIRONMENT PROTECTION
policies aimed at reducing pollution, conserving natural resources, and promoting
sustainable practices
benefits
ensures resources are kept for future generations
reduced pollution helps health issues
costs
may increase production costs - e.g switching to greener tech
INCOME EQUALITY
equal distribution of income across society, reducing the gap between the rich
and the poor
benefits
reduces social tension and promotes equality
equal societies lead to more stable economies
costs
requires gov intervention and spending
may reduce incentives to work
DEMAND SIDE POLICIES
MONETARY POLICY
Monetary policy is when the central bank attempts to control the levels of inflation
and aggregate demand by altering the base interest rates or the amount of money
in the economy
BASE INTEREST RATES
interest rate is used by the MPC and Bank of England to tackle inflation
2.6 3
MACROECONOMIC OBJECTIVES
Trade offs - when one macro economic objective is achieved, but it worsens the
performance on another objective
ECONOMIC GROWTH
an increase in the production of goods and services over time, shown by an
increase in real GDP
benefits
higher living standards - increased income and quality of life
employment - more job opportunities as economy expands
costs
inflation- rapid growth leads to rising prices
environmental damage - increase production damages environment
LOW UNEMPLOYMENT
when a large proportion of the economically active are employed
benefits
higher income - more people earning more wages
social stability - reduced poverty and social unrest
costs
inflation - higher wages, more demand, higher prices
skill mismatches
LOW AND STABLE INFLATION
prices of goods and services rise slowly and predictably over time
2.6 1
, benefits
predictability allows for businesses to plan for the future
higher purchasing power - consumers savings remain
costs
low inflation leads to low interest rates - does not stimulate investment
if inflation is too low, economy may lead to deflation
low economic growth
CURRENT ACCOUNT EQUILIBRIUM
when the value of goods and services exported is equal to the value of imports,
avoiding large deficits or surpluses.
benefits
reduces the reliance on foreign debt
exchange rate has stability
costs
too many exports can make the economy vulnerable to global downturns
may have to reduce domestic consumption to balance
BALANCED GOVERNMENT BUDGET
when government expenditure is equal to government revenue over time
benefits
prevents accumulation of debt
attracts foreign investment
costs
may require cuts in public services or higher taxes
reduces ability of gov to respond to economic shocks
2.6 2
, ENVIRONMENT PROTECTION
policies aimed at reducing pollution, conserving natural resources, and promoting
sustainable practices
benefits
ensures resources are kept for future generations
reduced pollution helps health issues
costs
may increase production costs - e.g switching to greener tech
INCOME EQUALITY
equal distribution of income across society, reducing the gap between the rich
and the poor
benefits
reduces social tension and promotes equality
equal societies lead to more stable economies
costs
requires gov intervention and spending
may reduce incentives to work
DEMAND SIDE POLICIES
MONETARY POLICY
Monetary policy is when the central bank attempts to control the levels of inflation
and aggregate demand by altering the base interest rates or the amount of money
in the economy
BASE INTEREST RATES
interest rate is used by the MPC and Bank of England to tackle inflation
2.6 3
