Macroeconomic Objectives | A-Level Economics
The four macroeconomic objectives
- economic growth
- 2% inflation
- low unemployment
- balance of payments on the current account
What is real gdp?
- the total value of goods and services produced in the UK economy
What are the stages of the economic cycle?
- boom - high economic growth, low unemployment, high inflation
- downturn
- recession - 2 or more consecutive quarters of negative economic growth
- recovery
What is actual economic growth?
- increase in real gdp
What is a positive output gap?
When actual growth is higher than potential growth
Use contractionary demand-side policies or supply-side policies.
What is a negative output gap?
When actual growth is lower than potential growth
Use expansionary demand-side policies.
What is cyclical unemployment?
Cyclical unemployment is caused by a recession or downturn in the economic cycle. For example, if XYZ happens causing a fall in aggregate demand, then firms wouldn't be required to produce as much output. Labour is a form of derived demand, so firms would layoff workers.
For example, during COVID, there was a lockdown so aggregate demand fell as people forced to stay at home. So, many firms made their workers redundant.
Use expansionary demand-side policies.
What is structural unemployment?
Structural unemployment happens when demand for a specific industry declines, so workers in that industry lose their jobs. They may not have transferable skills to gain a different job.
For example, UK steel industry (it was cheaper to import steel) or black cab drivers.
Re-train workers.
What are two causes of inflation?
Inflation is when there is a rise in average price level.
There is too much demand chasing too few goods and services.
- Demand pull inflation is when the price level increases because of a right shift in aggregate demand.
- Cost push inflation is when the price level increases because of a left shift in short-run aggregate supply.