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Economics revision (Macroeconomic Objectives (Economic growth (L&MIC--…

- - - - High and sustainable economic growth
        
        Low unemployment
        
        Low Inflation
        
        A sustainable fiscal position
        
        Environmental objectives, such as reducing pollution and greenhouse gas emissions
        
        Objectives relating to income and wealth equality
        -trade balance
- - - - For example, one key reason for the under-provision of public goods is that it is relatively easy to gain the benefits from the good without having to pay for it. So there is a large incentive for individuals not to pay for the good in the hope that someone else will pay for the for its provision.
  - - - For example, if a dentist recommends treatments when patients are not in any pain, how do patients know that the treatments are really in their best interest?
  - - - For example, the enviromental impact of cutting down trees to create agricultural land is not included in the cost of the output.
  - - - For example, an organisation that is allowed to pollute without penalty has no incentive to reduce pollution.
  - - - For example, if traders expect the values to keep rising more and more traders will buy the stock but if someone decides to sell then instead of rising it will fall and then all the traders will sell the stock which will lead to a rapid fall in the stock price and it will leave some traders facing huge loss.
- - - - taxes
        
        Taxes paid to the government take money from both households and firms.
      - imports
        
        Imports from abroad are bought by both households and firms. the money paid in taxes then does not flow back round the circular flow.
      - savings
        
        Saving by households is money that is not spent by households. Equally, firms do not spend all of their money on wages and profits but may save some of it.
    - - investment
        
        Investment is spending by firms on new capital equipment like factories, offices and macinery. It is also spending on stocks (inventories) of goods that are used in the production process.
      - government spending
        
        Is spending by central banks and local government as well as other government agencies.
      - exports
        
        Exports is spending by foreigners on goods and services made in the conomy.
  - - - The value of spending by households on good and services.
    - - The value of income paid by firms to households in return for land, labour and capital.
    - - The value of the flow of goods and services from firms to households.
- - - - When there are positive externalities created by the production of certain goods
        
        A firm offers training to its workforces which increases their skills: other firms benefit when the workers change jobs
    - - When there are positive externalities created by the consumption of certain goods
        
        For example, when a child is given an injection to prevent a disease, it makes it less likely that another unprotected child in the local area will get the illness
    - - Government interventions
        
        To increase demand
        
        Free information
        
        To compensate for information failure
        
        Reducing price
        
        Encourages the consumption of a good
        
        Oblige certain activities
        
        To force the consumption of a good or service
        
        To increase supply
        
        Fund merit goods
        
        Provide for services that generate positive externalities
        
        Subsidise producers
        
        Help out those that generate positive externalities
        
        Offer grants to producers
        
        To encourage the production of a certain good
  - - - when social benefits are less than private costs
        
        For example, with passive smoking, a person who smokes in their house harms the health of others in the home
    - - when social costs exceed private costs
        
        An example is when a factory pumps polluted water into a river at no cost to itself
    - - Government interventions
        
        Selling permits to pollute
        
        Become traded by polluters
        
        Forcing pollutants to pay to those who suffer
        
        Pay for double glazing
        
        Subsidising households
        
        giving grants for home insulation improvements
        
        Road pricing schemes
        
        pay-as-you-go
        
        Taxing polluters
        
        plastic bags
        
        Providing information to consumers and producers
        
        Airplane tickets with information on how much co2 will be released
  - - - Output= fixed
        
        Where demand=supply at the point where private costs=private benefits
        
        HOWEVER
        
        If market prices do not accurately reflect the costs and benefits to society of economic activities, a misallocation of resources will occur.
        
        The greater the externality, the larger will be the difference between private costs and benefits.
        
        =The greater the MARKET FAILURE
- - - - When an initial increase in an injection or a decrease in a leakage leads to a greater final increase in real GDP
    - - When an initial decrease in an injection or an increase in a leakage leds to a greater final decrease in real GDp
- - - - Risk taking (by banks )
        
        Excess risk taking eads to bank losses
        
        Government bailoput (governments cant allow banks to go bust)
        
        Governement bailputs encourgae risk taking
    - - Insurance and consumer beahviour
      - Moral Hazard and sub-prime mortages
      - Fiscal and monetary union