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IGCSEEconomicsCambridge (CIE)Flashcards4. Government & the Macroeconomy4.2 The Macroeconomic Aims of Government

4.2 The Macroeconomic Aims of Government (Cambridge (CIE) IGCSE Economics)

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  • What is economic growth?

    Economic growth is an increase in the productive capacity of an economy over time.

  • What is a sustainable growth rate?

    A sustainable growth rate is essentially the rate at which an economy can expand its productive capacity without encountering significant obstacles, typically around 2-3% per year.

  • Define the term inflation.

    Inflation is a sustained increase in the general price level of goods and services in an economy over time.

  • True or False?

    A low and stable rate of inflation is desirable.

    True.

    A low and stable rate of inflation is desirable.

  • What does the term unemployment mean?

    Unemployment is the condition of being without a job but actively seeking work.

  • State the meaning of full employment.

    Full employment is a situation where all available labour resources are being used in the most efficient way possible.

  • How is the current account in the balance of payments calculated?

    The current account in the balance of payments is calculated as the difference between a country's exports and imports of goods and services.

  • What is a current account surplus?

    A current account surplus is when a country's exports exceed its imports.

  • Define current account deficit.

    A current account deficit is when a country's imports exceed its exports.

  • Which is more problematic, a current account surplus or deficit?

    A current account deficit is more problematic in the long run.

  • State the meaning of income redistribution.

    Income redistribution is the transfer of income from the wealthy to the poor, typically through taxation and welfare programmes.

  • What is the aim of income redistribution?

    The aim of income redistribution is to reduce income inequality and poverty in an economy.

  • True or False?

    There are no trade-offs in achieving the macroeconomic objectives.

    False.

    Policy decisions often create trade-offs between macroeconomic aims, where achieving one objective may come at the cost of another.

  • What is the trade-off between economic growth and inflation.

    Rapid economic growth can lead to demand-pull inflation.

  • What is the trade-off between economic growth and environmental sustainability?

    Higher economic growth tends to deplete natural resources at a faster rate, increasing pollution and negative externalities, which conflict with environmental sustainability goals.

  • How is income inequality affected by economic growth?

    During periods of strong economic growth, incomes and profits for business owners and investors tend to rise faster than wages for workers, worsening income inequality.

  • What is the impact of economic growth on the current account balance?

    Robust economic growth that raises incomes can increase household spending on imports, worsening a country's current account balance.

  • True or False?

    Low unemployment always leads to high inflation.

    False.

    Low unemployment can contribute to wage inflation, which may feed into broader inflation, but other factors like productivity gains can offset this effect.

  • What trade-off does the Phillips curve show?

    The Phillips curve illustrates the trade-off between low unemployment and low inflation, as lower unemployment tends to put upward pressure on inflation.

  • What is demand-pull inflation?

    Demand-pull inflation occurs when total demand in an economy outpaces the total supply of goods and services, bidding up prices.

  • Define the term cost-push inflation.

    Cost-push inflation is caused by an increase in the costs of production (higher wages or raw material prices), leading to higher consumer prices.

  • True or False?

    Supply-side policies are best used to address demand-pull inflation.

    False.

    Demand-side policies, like higher interest rates or reduced government spending, are best used to address demand-pull inflation.

  • How can supply-side policies help with inflation?

    Supply-side policies that improve productivity, incentivise business investment, or reduce regulatory burdens can help ease cost-push inflation.

Previous:4.1 The Role of GovernmentNext:4.3 Fiscal Policy

    1. Topic 1

      1.1 The Nature of the Economic Problem

    2. Topic 2

      1.2 The Factors of Production

    3. Topic 3

      1.3 Opportunity Cost

    4. Topic 4

      1.4 Production Possibility Curves

    1. Topic 1

      2.1 Microeconomics & Macroeconomics

    2. Topic 2

      2.2 The Role of Markets in Allocating Resources

    3. Topic 3

      2.3 Demand

    4. Topic 4

      2.4 Supply

    5. Topic 5

      2.5 Price Determination

    6. Topic 6

      2.6 Price Changes

    7. Topic 7

      2.7 Price Elasticity of Demand (PED)

    8. Topic 8

      2.8 Price Elasticity of Supply (PES)

    9. Topic 9

      2.9 Market Economic System

    10. Topic 10

      2.10 Market Failure

    11. Topic 11

      2.11 Mixed Economic System

    1. Topic 1

      3.1 Money & Banking

    2. Topic 2

      3.2 Households

    3. Topic 3

      3.3. Workers

    4. Topic 4

      3.4 Trade Unions

    5. Topic 5

      3.5 Firms

    6. Topic 6

      3.6 Firms & Production

    7. Topic 7

      3.7 Firms’ Costs, Revenue & Objectives

    8. Topic 8

      3.8 Market Structure

    1. Topic 1

      4.1 The Role of Government

    2. Topic 2

      4.2 The Macroeconomic Aims of Government

    3. Topic 3

      4.3 Fiscal Policy

    4. Topic 4

      4.4 Monetary Policy

    5. Topic 5

      4.5 Supply-side Policy

    6. Topic 6

      4.6 Economic Growth

    7. Topic 7

      4.7 Employment & Unemployment

    8. Topic 8

      4.8 Inflation & Deflation

    1. Topic 1

      5.1 Living Standards

    2. Topic 2

      5.2 Poverty

    3. Topic 3

      5.3 Population

    4. Topic 4

      5.4 Differences in Economic Development

    1. Topic 1

      6.1 International Specialisation

    2. Topic 2

      6.2 Globalisation, Free Trade & Protection

    3. Topic 3

      6.3 Foreign Exchange Rates

    4. Topic 4

      6.4 Current Account of Balance of Payments