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4. Government and the macroeconomy

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  1. 4.1. Government macroeconomic intervention

    1. • the macroeconomic aims of government: • economic growth • full employment/low unemployment • stable prices/low inflation • balance of payments stability • redistribution of income • environmental sustainability • reasons behind the choice of aims and the criteria that governments may set for meeting each aim • possible conflicts between macroeconomic aims: • full employment and stable prices • economic growth and environmental sustainability • full employment and balance of payments stability

  2. 4.2. Fiscal policy

    1. • definitions of: • government budget • government budget deficit • government budget surplus • calculations of the size of a government budget deficit/surplus

    2. • main areas of government spending and the reasons for and effects of spending in these areas

    3. • reasons for taxation: raising revenue, discouraging consumption of demerit goods, reducing imports, redistributing income, influencing total demand, encouraging environmental sustainability • examples of the different classifications of tax: progressive, regressive, proportional; direct, indirect • impact of taxation on consumers, workers, producers/firms, the government and the economy

    4. • Definition of fiscal policy

    5. • changes in: • taxes • government spending

    6. • how fiscal policy measures may enable a government to achieve its macroeconomic aims

  3. 4.3. Monetary policy

    1. • Definitions of money supply and monetary policy

    2. • changes in: • interest rate • money supply • foreign exchange rate

    3. • how monetary policy measures may enable a government to achieve its macroeconomic aims

  4. 4.4. Supply-side policy

    1. • Definition of supply-side policy

    2. • education and training • infrastructure spending • labour market reforms • lower direct taxes • deregulation • improving incentives to work and invest • privatisation

    3. • how supply-side policy measures may enable a government to achieve its macroeconomic aims

  5. 4.5. Economic growth

    1. 4.5.1Definition of economic growth

      • Definition of economic growth

    2. 4.5.2Measurement of economic growth

      • real Gross Domestic Product (GDP)

    3. 4.5.3Causes and consequences of economic growth

      • how economic growth may be caused by an increase in total demand, an increase in the quantity of resources or an increase in the quality of resources • advantages and disadvantages of economic growth

    4. 4.5.4Causes and consequences of recession

      • definition of recession • how a recession may be caused by a decrease in total demand, a decrease in the quantity of resources or a decrease in the quality of resources • consequences of recession for consumers, workers, producers/firms and the government

    5. 4.5.5Policies to promote economic growth

      • the range of policies available to promote economic growth and their effectiveness

  6. 4.6. Employment and unemployment

    1. • Definitions of employment, unemployment and full employment

    2. • how unemployment is measured (labour force survey) • formula for the unemployment rate

    3. • frictional unemployment • structural unemployment • cyclical unemployment • seasonal unemployment

    4. • consequences of unemployment for the individual, producers/firms, the government and the economy

    5. • the range of policies available to reduce unemployment and their effectiveness

  7. 4.7. Inflation

    1. • Definitions of inflation and deflation

    2. • measurement of inflation using the Consumer Prices Index (CPI)

    3. • demand-pull • cost-push

    4. • how inflation affects savers, lenders and borrowers • consequences of inflation for consumers, workers, producers/firms and the economy

    5. • the range of policies available to control inflation and their effectiveness