These notes provided a detailed insight into the topic of Measurement of macroeconomic performance. This is perfect for an AQA Economics A Level student. This file breaks down the content in order for it to be fully absorbed. It finds the perfect balance between bullet points, images, graphs and in...
The objectives of government economic policy
4 macroeconomic objectives to provide macro stability.
Economic growth:
● UK economic growth is about 2.5%. Governments aim for sustainability
● In emerging markets, governments might aim to increase economic
development before economic growth, to improve living standards, life
expectancy + literacy
Minimising unemployment:
● Aim for as near to full employment as possible. They account for
frictional unemployment by aiming for an unemployment rate of around
3%
Price stability:
● The UK inflation target is 2%, measured with CPI
● This aims to provide price stability + support long run decisions
Stable balance of payments on current account:
● Governments aim for the current account to be satisfactory, so there is
not a large deficit. This is usually near to equilibrium
● A balance of payments equilibrium on the current account means the
country can sustainably finance the current account, which is important
for long term growth.
Other macroeconomic objectives
Balanced government budget:
● Ensure control of state borrowing, so the national debt doesn’t
escalate
● This allows cheap borrowing in the future + easier repayment
Greater income equality:
● Income and wealth should be distributed equitably, so the wealth gap
is not extreme
Potential conflicts and trade-offs between the macroeconomic objectives
(generally in the short run):
Economic growth vs inflation:
A growing economy is likely to experience inflationary pressures on the
average price level. This is especially true when there is a positive output
gap and AD increases faster than AS.
Economic growth vs the current account:
High spending during economic growth - more imports - worsening the
, current account deficit. However, export-led growth e.g. in China +
Germany, means a country can run a current account surplus and have high
economic growth.
Economic growth vs budget deficit:
Reducing a budget deficit requires less expenditure + more tax revenue.
This would lead to a fall in AD + less economic growth.
Economic growth vs the environment:
High rates of economic growth result in high levels of negative
externalities e.g. pollution.
Unemployment vs inflation:
In the short run, there is a trade-off between unemployment + inflation
rates. This is illustrated with a Phillips curve. As economic growth
increases, unemployment falls due to more jobs being created. However,
this causes wages to increase, leading to more spending + an increase in
the average price level.
The extent of this trade off can be limited if supply side policies are used to
reduce structural unemployment, which will not increase average wages.
Macroeconomic indicators
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Dannygrant. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £3.49. You're not tied to anything after your purchase.
