Government objectives Topic 9: aggregate demand and aggregate supply Government objectives

Students should be able to: Unit content Students should be able to: Identify the major current macroeconomic objectives (increase economic growth; reduce unemployment; control inflation; restore equilibrium in the Balance of Payments current account; balance the government budget; protect the environment; greater income equality)

What do governments try to improve? They can compare their performance over time or with other countries What is an objective? The macroeconomic objectives of governments are listed on the next slide.

What are the macroeconomic objectives of a government? Topic 9: aggregate demand and aggregate supply What are the macroeconomic objectives of a government? ________________ economic growth ________________ in unemployment _________ and __________ inflation Balance of payments _______________ on current account _______________ government budget _______________ of the environment ______________ income equality

Economic growth – mind map What is economic growth? How is it measured? What is the current rate? Sketch the economic cycle and label the stages Sketch the output gap What is the multiplier? What is marginal propensity to consume? Why does the government want economic growth?

Employment and unemployment – mind map What is unemployment? What are the two measures? What are the four causes? Sketch a LRAS showing unemployment What is the current %? What are the costs of unemployment? Why does the government want low unemployment?

What is inflation? How do we measure it? Inflation – mind map What is inflation? How do we measure it? Why does the gov. want low & stable inflation? Who is in charge in the UK? What causes inflation? Draw two diagrams showing the impact of: (i) a supply shock on SRAS (e.g. increase in oil prices) and inflation, (ii) an increase in AD on LRAS and inflation Why does it matter if we have high inflation?

The annual change in the CPI is a measure of inflation. Exam hint The Consumer Price Index (CPI) is not a measure of inflation. What does it measure? The annual change in the CPI is a measure of inflation. What is the current rate of inflation?

Balance of payments – mind map What is the UK balance of payments? What is a current balance deficit (current account deficit)? Why does a deficit on the current account matter? What causes a deficit on the current account?

Government deficit v debt – mind map Topic 9: aggregate demand and aggregate supply Government deficit v debt – mind map What is the difference between the (budget) deficit and the government (national) debt? What are the current figures? Why does it matter if they are increasing?

Why are environmental issues important for the government? Why is protecting the environment difficult for the UK government?

Income redistribution – mind map What causes income inequality? How can it be redistributed? What are the costs of inequality?

Students should be able to: 2.6.4 Unit content: conflicts and trade-offs between objectives and policies Students should be able to: Give examples of potential conflicts and trade-offs between the macroeconomic objectives Assess the short-run Phillips curve Assess potential policy conflicts and trade-offs (2.6.2 and 2.6.3)

Conflicting macroeconomic policies There are often conflicts between macroeconomic policy objectives E.g. increasing levels of growth may conflict with the aim of price stability why? The pursuit of one objective may mean an opportunity cost in terms of another This is referred to as a _______ where an increase in one area is traded for a decrease in the other

Research the UK situation February/March 2018 Topic 9: aggregate demand and aggregate supply Research the UK situation February/March 2018

What is the Phillips curve? The Phillips curve shows an ________ relationship between unemployment and inflation Hence there is a ______ between low inflation and low unemployment. But, in 1990 inflation was 10% and unemployment was 7% In 2015 inflation was and unemployment

Stagflation In the 1970s the Phillips curve seemed less helpful as the UK experienced stagflation – what does this mean?

Other possible conflicts Topic 9: aggregate demand and aggregate supply Other possible conflicts