https://pmt.physicsandmathstutor.com/download/Economics/A-level/Notes/Edexcel-A/Theme
-2/Summary/2.6.%20Macroeconomic%20Objectives%20and%20Policies.pdf
2.6.1 Possible macroeconomic objectives
main aims of the government to achieve improved economic welfare and macro stability.
1. Economic growth (in emerging markets: aim for development>growth; to increase life
expectancy + improve literacy rates
2. Low unemployment (accounting for frictional aim fo 3%)
3. Low and stable rate of inflation (UK 2% target to provide price stability)
4. Balance of payments equilibrium on current account (sustainable finance of CA)
5. Balanced government budget (control national debt from escalating)
6. Protection of the environment (no exploitation of commodities (oil/natural gas) //
sustainable production to benefit future generations // no excessive pollution)
7. Greater income equality (fairer society/no extreme gap between rich and poor)
2.6.2 Demand-side policies
Monetary Policy
controls flow of money in economy, conducted by BofE independent from government
- interest rates = cost of borrowing and reward for saving
- quantitative easing = asset purchases to increase the money supply
- Affects competitiveness due to its effect on the exchange rate
- A change in the base rate does not mean high-street rates change
- Can reduce investment, causing slower economic growth
- Increases long run economic growth via political and economic stability & ensures
incomes are quite high relative to other countries
- Effective in the UK due to high household debt
- Affects both AD and LRAS, so has short- and long-term effects
- No political bias as it is controlled by the Monetary Policy Committee
Fiscal policy
controls GS & revenues from taxation to influence AD, conducted by the government
- government spending
- taxation
- direct (income/corporation)
- indirect (VAT ad valorem/specific excise duty)
- CROWDING OUT! (depends on how sensitive money demand is)
- Time lag
- recognition lag: time it takes to identify that a problem exists and requires
intervention.
- decision lag: time it takes to formulate and decide on a policy to address the
identified problem.
- implementation lag: time it takes to actually implement the decided policy.
- impact lag: time it takes for a policy to actually have a measurable impact on
the system or problem it's intended to address.
- response lag: time it takes for the economy to respond to an economic
policy change or stimulus.
- Budget fiscal deficit
- Governments may seek votes rather than economic stability
-2/Summary/2.6.%20Macroeconomic%20Objectives%20and%20Policies.pdf
2.6.1 Possible macroeconomic objectives
main aims of the government to achieve improved economic welfare and macro stability.
1. Economic growth (in emerging markets: aim for development>growth; to increase life
expectancy + improve literacy rates
2. Low unemployment (accounting for frictional aim fo 3%)
3. Low and stable rate of inflation (UK 2% target to provide price stability)
4. Balance of payments equilibrium on current account (sustainable finance of CA)
5. Balanced government budget (control national debt from escalating)
6. Protection of the environment (no exploitation of commodities (oil/natural gas) //
sustainable production to benefit future generations // no excessive pollution)
7. Greater income equality (fairer society/no extreme gap between rich and poor)
2.6.2 Demand-side policies
Monetary Policy
controls flow of money in economy, conducted by BofE independent from government
- interest rates = cost of borrowing and reward for saving
- quantitative easing = asset purchases to increase the money supply
- Affects competitiveness due to its effect on the exchange rate
- A change in the base rate does not mean high-street rates change
- Can reduce investment, causing slower economic growth
- Increases long run economic growth via political and economic stability & ensures
incomes are quite high relative to other countries
- Effective in the UK due to high household debt
- Affects both AD and LRAS, so has short- and long-term effects
- No political bias as it is controlled by the Monetary Policy Committee
Fiscal policy
controls GS & revenues from taxation to influence AD, conducted by the government
- government spending
- taxation
- direct (income/corporation)
- indirect (VAT ad valorem/specific excise duty)
- CROWDING OUT! (depends on how sensitive money demand is)
- Time lag
- recognition lag: time it takes to identify that a problem exists and requires
intervention.
- decision lag: time it takes to formulate and decide on a policy to address the
identified problem.
- implementation lag: time it takes to actually implement the decided policy.
- impact lag: time it takes for a policy to actually have a measurable impact on
the system or problem it's intended to address.
- response lag: time it takes for the economy to respond to an economic
policy change or stimulus.
- Budget fiscal deficit
- Governments may seek votes rather than economic stability
