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25 The macroeconomic aims of government - Coggle Diagram
25 The macroeconomic aims of government
Governments’ macroeconomic aims
Low unemployment
Full employment: 1 the lowest level of unemployment possible. 2 Get wage rate
Economically active: member of labor force (actively seeking work)
Unemployment rate
Unemployment/Labour force × 100
Why aim for~?
2 If not, suffer Low income (income tax revenue↓)
3 If not, govern spend more on unemployment support
1 Allocative Efficiency
Labor force= employed+unemployed
Price stability
Def: the price level in the economy not changing significantly over time.
Inflation rate: the percentage rise in the price level of goods and services over time.
Why aim for~?
Households: No fear of more expensive items
Greater confidence
Workers: Maintain real disposable income
Firms: calculate accurate profit
Criteria: ↑2%~3% inflation rate
Economic growth
Def: an increase in the output of an economy and in the long run, an increase in the economy’s productive potential
Actual economic growth: increase in economic output
Potential economic growth: increase in productive capacity
AD/AS
Aggregate demand
C + I + G + (X - M)
AD Extension (when fall in price)
purchasing power↑, export↑, net export↑
Shift
2 Cut in rate of interest (C↑)
3 Lower exchange rate (cheaper, import↓, net export↑)
1 Increase in population (C↑)
4 Greater Confidence (C↑, I↑)
Aggregate supply
Section 2 (More inelastic)
Section 3 (Perfectly elastic)
Section 1 (Perfectly elastic)
Why aim for~?
Extra Tax Revenue
If output↑ match demand↑, price level↓
↑ Employment
↑ trade position
1 ↑Living Standard
Balance of payments stability
Balance of payments: the record of a country’s economic transactions with other countries.
governments want
export revenue=import expenditure
If
expenditure on imports>revenue from exports
(Deficit)
go into debt
expenditure on imports<revenue from exports
(Surplus)
not enjoying products
low living quality
Redistribution of income
methods
taxing (Rich taxed>poor)
spending (means of benefit eg. free edu and health)
Why aim for~?
Rich always have better resources
Social unrest
Criteria (unlikely perfect equal)
People have different needs
May disincentive to effort/ enterprises
Possible conflicts between
macroeconomic aims
Full employment vs. economic growth
Priority
Full employment vs. stable prices