4.2

Macroeconomic aims

10 flashcards to master Macroeconomic aims

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Definition Flip

Define 'economic growth' and provide an example.

Answer Flip

Economic growth is the increase in the real GDP of an economy over a period of time.

Example: a country increasing its output of goods and services from $1 trillion to $1.1 trillion indicates economic growth.
Definition Flip

Explain what is meant by 'low unemployment' as a macroeconomic aim.

Answer Flip

Low unemployment refers to a situation where a small percentage of the workforce is actively seeking jobs but unable to find them. A healthy economy typically aims for an unemployment rate between 3-5%.

Definition Flip

What does 'low inflation' entail as a macroeconomic objective?

Answer Flip

Low inflation signifies a slow and steady increase in the general price level of goods and services in an economy. Central banks usually target an inflation rate of around 2% to maintain price stability.

Definition Flip

Describe 'balance of payments' equilibrium as a macroeconomic aim.

Answer Flip

Balance of payments equilibrium means that a country's total payments to the rest of the world are equal to its total receipts from the rest of the world over a specific period. This doesn't necessarily mean a zero current account balance, but a sustainable level of deficit or surplus that can be financed.

Definition Flip

What is a 'macroeconomic objective'?

Answer Flip

A macroeconomic objective is a desired goal or target for the overall performance of an economy. Common objectives include economic growth, low unemployment, low inflation, and a stable balance of payments.

Key Concept Flip

Explain how 'conflict' can arise between macroeconomic aims.

Answer Flip

Conflicts arise when pursuing one macroeconomic objective makes it more difficult to achieve another.

Example: policies to stimulate economic growth may lead to higher inflation.
Key Concept Flip

Define the term 'trade-off' in the context of macroeconomic policy.

Answer Flip

A trade-off occurs when a decision-maker must accept having less of one thing in order to get more of something else.

Example: accepting slightly higher inflation to achieve faster economic growth.
Key Concept Flip

Outline one potential conflict between low unemployment and low inflation.

Answer Flip

Policies designed to reduce unemployment (

Example: increased government spending) may increase aggregate demand, leading to demand-pull inflation. This creates a trade-off where reducing unemployment can lead to rising prices.
Definition Flip

What is demand-pull inflation?

Answer Flip

Demand-pull inflation is inflation caused by an increase in aggregate demand which is faster than the growth of aggregate supply, leading to a general rise in prices.

Key Concept Flip

Explain one way a government might attempt to achieve both economic growth and a favorable balance of payments.

Answer Flip

A government could invest in education and technology to improve the productivity and competitiveness of domestic industries. This would boost economic growth through increased output and improve the balance of payments by increasing exports and reducing reliance on imports.

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4.1 Government role in economy 4.3 Fiscal policy

Key Questions: Macroeconomic aims

Define 'economic growth' and provide an example.

Economic growth is the increase in the real GDP of an economy over a period of time.

Example: a country increasing its output of goods and services from $1 trillion to $1.1 trillion indicates economic growth.
Explain what is meant by 'low unemployment' as a macroeconomic aim.

Low unemployment refers to a situation where a small percentage of the workforce is actively seeking jobs but unable to find them. A healthy economy typically aims for an unemployment rate between 3-5%.

What does 'low inflation' entail as a macroeconomic objective?

Low inflation signifies a slow and steady increase in the general price level of goods and services in an economy. Central banks usually target an inflation rate of around 2% to maintain price stability.

Describe 'balance of payments' equilibrium as a macroeconomic aim.

Balance of payments equilibrium means that a country's total payments to the rest of the world are equal to its total receipts from the rest of the world over a specific period. This doesn't necessarily mean a zero current account balance, but a sustainable level of deficit or surplus that can be financed.

What is a 'macroeconomic objective'?

A macroeconomic objective is a desired goal or target for the overall performance of an economy. Common objectives include economic growth, low unemployment, low inflation, and a stable balance of payments.

About Macroeconomic aims (4.2)

These 10 flashcards cover everything you need to know about Macroeconomic aims for your Cambridge IGCSE Economics (0455) exam. Each card is designed based on the official syllabus requirements.

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