Macroeconomic Policy Objectives AS Economics Aims and Objectives

Macroeconomic Policy Objectives AS Economics

Aims and Objectives Aim: • Understand two macroeconomic objectives. Objectives: • Define policy instruments and objectives • Explain full employment • Analyse full employment and economic growth as economic policies • Evaluate the sustainability of policies

Starter • Define a policy instrument • Define a policy objective

Policy Instruments and Objectives Policy Objective: • Government’s major macroeconomic objectives. Policy Instruments: • Techniques used to achieve policy objectives.

E 1 E V CTI OBJ Full Employment • Everyone that wants a job can find one. • Unemployment is a misallocation of resources. • Could be increasing economic welfare by producing g/s. • Government wants full employment because it leads to increased standards of living, positive externalities. • Increase in tax revenues, decreases in consumption of demerit goods etc. • More money for gov. to spend on increasing LRAS.

1 E V CTI E OBJ Full Employment PRICE LEVEL LRAS AD 4 • FE can be achieved by increasing AD. • AD 1 -AD 2 increase in employment and some inflation. AD 3 • An increase to AD 3 will take economy to FE level. AD 2 • An increase beyond AD 4 will be highly inflationary. AD 1 • Re-Create on Whiteboards. FE REAL GDP

E 1 E V CTI OBJ Full Employment • Keynes promoted use of increasing AD to increase employment. • Using this method caused inflation and balance of payments deficits. • UK goods became internationally uncompetitive and consumers bought cheaper foreign goods. • Policy Trade Off. • 60 s & 70 s governments used the demand side policy until inflation and deficit were too high, and then reversed it’s policies. (boom/bust policy)

E 1 E V CTI OBJ Full Employment PRICE Shift due to supply side policies. LEVEL • • Education – makes labour more employable and flexible to fill jobs. • http: //news. bbc. co. uk/1/hi/prog rammes/world_news_america/ 7649745. stm • Output is increasing • More employment, and prices falling. • Making UK economy more competitive internationally. • Re-create on white boards. LRAS 1 LRAS 2 AD REAL GDP

Is China approaching a growth slowdown?

E OBJ 2 E V CTI Economic Growth • http: //news. bbc. co. uk/1/hi/programmes/newsnight/9650876. stm • Why should a government pursue the objective of economic growth?

E E V I T C OBJ 2 Potential and Actual Growth • A shift in PPB represents potential growth. Capital Goods PPB 2 PPB 1 B • A move from point A to point B represents actual growth A Consumer Goods

E OBJ 2 E V CTI Economic Growth • Government pursues growth in an attempt to increase GDP and therefore GDP Per Capita, and therefore standards of living. • Is economic growth sustainable?

E OBJ 2 E V CTI Economic Growth • At pt B there is a policy conflict between growth and inflation. • Monetary Policy used to control inflation and restrict AD. • At pt A interest rate will be low in an attempt to boost AD. Trend Growth B GDP Actual Growth A Time

E OBJ 2 E V CTI Economic Growth • Economists consider that it is supply side factors that are likely to cause economic growth. • Government cannot affect all of the causes of economic growth. • However it can input policies to encourage the private sector to stimulate growth.

E OBJ 2 E V CTI Plenary ‘Economic growth is the crucial objective for governments to pursue’ 1) Define economic growth 2) Construct a diagram to illustrate actual and potential economic growth 3) Can the above statement be justified?