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AS and A Level: Macroeconomics

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The macroeconomic objectives

  1. 1 Growth is measured usually by the GDP per capita. Be aware that just looking at GDP as a measure of growth is flawed to some extent and know the criticisms of it e.g. ignores the distribution of income, exchange rate problems.
  2. 2 Full employment – This usually tracks GDP growth to a large extent. Some unemployment in an economy is normal as people change jobs (frictional unemployment) and some would say a little unemployment is useful for preventing big wage rises.
  3. 3 Low inflation – Inflation is a persistent rise in the level of prices. If a country has inflation its prices are likely to rise compared with foreign competitors so the country will become uncompetitive.
  4. 4 The balance of payments needs to be in equilibrium, where the value of imports equals the value of exports.
  5. 5 The most important objective varies – For many years it was the balance of payments and unemployment. Until very recently it was inflation and much more recently, growth has become the most important. Remember that all objectives need to be achieved at the same time.

Macroeconomic Policies

  1. 1 The government tries to regulate the economy, mainly by affecting the level of Aggregate Demand (AD) and Aggregate Supply (AS). There are three main types of policy listed below.
  2. 2 Fiscal policy is using taxation and government spending to regulate AD by, for instance, increasing tax to reduce AD or borrowing more to spend on infrastructure projects to increase AD. Fiscal policy is used less to affect AD recently.
  3. 3 Monetary policy is essentially affecting the amount of money in the economy by changing the money supply, changing the exchange rate or altering the interest rate. In recent years, monetary policy has mainly come to mean just changing the interest rate with the main aim of affecting AD however quantitative easing is also monetary policy.
  4. 4 Supply side policies are designed to increase AS by improving the production potential of the economy. Examples include improving education and training, increasing competition for businesses and tax breaks for research and development.
  5. 5 In practice, governments use all three policies to regulate the economy. Supply side policies are seen as most effective as they also lead to lower inflation but their effects are in the long term.

Keynes versus Friedman

  1. 1 This is regarded as being a key ideological stand off regarding government regulation of the economy.
  2. 2 Keynes believed that the government had a big role to play in the economy by regulating aggregate demand. When AD was too low so there was low growth and unemployment, the government should borrow money and embark on public sector expenditure to stimulate AD and the economy. When AD was too high, the government should increase tax or reduce government spending to reduce AD.
  3. 3 Friedman was a monetarist. He believed that the free market should be left to itself to regulate the economy. He believed that left alone, the economy would provide full employment and growth. The government would only create inflation by injecting money into the economy. The government should regulate the money supply only.
  4. 4 The dominant ideology changes. From 1945 to 1979, Keynes was dominant. During the 1980s monetarism came back. Now there is arguably a more balanced view.
  5. 5 Avoid simplistic analysis. The debate concerning the role of the government in macroeconomics is complex.

  • Marked by Teachers essays 5
  • Peer Reviewed essays 35
  1. Why does smoking lead to an external cost?

    Tax on cigarettes is known as an ad valorem tax which is based on percentage of the market price, so the larger the quantity that is bought, the higher the rate of tax. When the price of cigarettes is higher, there is a shift in quantity supplied from Q1 to Q2. This is shown by a shift in the supply curve from S to S post tax. Higher tax rates would restrict the amount of cigarettes that are bought and so will reduce the amount of negative externalities and external costs of smoking.

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  2. Pakistan is in the grip of a serious energy crisis that is affecting all sectors of the economy and the various segments of the society. As the situation stands to-day, there are hardly any immediate solutions to resolve the issue.

    The production of crude oil is not sufficient as consumption. There is no prospect of Pakistan reaching self-sufficiency in oil. Natural Gas Natural gas has been gaining immense substance around the world due to its quality of being a cleaner fuel compared to coal and oil. Pakistan depends heavily on its natural gas reserves for different sectors of the economy. The Energy Commission estimated that Pakistan will be facing a shortfall in gas supplies rising from 1.4 Billion Cubic Feet (BCF)

    • Word count: 3702
  3. Extended Project - Microcredit

    Grameen bank claim to have lifted over 50% of its clients from poverty (a number which exceeds 50million people). [2] Additionally, microcredit is rapidly growing ever since its spotlight from the press after 2005. With mainly the positives sides portrayed with the majority of articles, displaying microcredit as a key tool for poverty alleviation, it is also important to see the other side of the argument. I was never able to research the topic further, but now I have the chance, as well as the interest, making this a perfect choice for me.

    • Word count: 8731
  4. To what extent does the government budget/statement reflect current government priorities?

    Fiscal policy refers to government policy that attempts to influence the direction of the economy through changes in government spending or taxes. Fiscal policy can be contrasted with the other main type of economic policy, 'monetary policy' which attempts to stabilize the economy by controlling interest rates and the supply of money. The government in power needs to ensure that the budget expenditure is divided correctly and proportionately to the areas that require it most. This depends on the government priorities.

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  5. Indian Economics

    It is the study of overall economic phenomena as a whole rather than its individual parts. It includes : 1. national income and output; 2. general price level/ inflation; 3. balance of trade and payments; 4. external value of money; 5. saving and investment; and 6. employment and economic growth. The objectives of Macro Economics are explained as follows:- 3. Healthy Economic Growth: Economic growth may be defined as an increase in aggregate output of real goods and services during a given period of time, generally a year.

    • Word count: 3601
  6. Unemployment Issues in Germany

    The main source of communication is telephones with 50,900,000 users followed by Internet with 32,100,000 users. Germany is made up of 13 states and 3 free states. Germany is among the world's largest and most technologically advanced producers of iron, steel, coal, cement, chemicals, machinery, vehicles, machine tools, electronics, food and beverages, ship building, and textiles. Germany's currency was the Deutsche Mark until 2002 when the Euro was introduced and adopted by Germany and other countries in Europe. Sports are one of the favorite leisure-time activities for Germans. There more than 87, 000 sports clubs and around 27 million, one third of the population, are member of a sport club.

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  7. Budget 2004-05 and Economic Analysis of Pakistan

    The Challenges that Fedral Budget 2004-05 will have to meet, its major features have been discussed briefly. I have also included the comparaison between previous and current fiscal year's budget. I hope that this report will enhance the knowledge of the common reader as well as it will provide benefit to my juniors in understanding the status of Pakistan with respect to its fiscal policies and their performance. BUDGET Budget is an annual exercise of revision and redefining of fiscal policies aiming at fixing of revenue targets by the government. Budget is announced before the commencement of next financial year for the information of tax payers.

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  8. Unemployment Report.

    It proposes that high wages create a greater incentive for workers making them more productive. This prevents firms from cutting their wages at a time when there is excess supply of labor. This is in spite of the fact that by lowering the standard wage the firm will be able employ a greater number of workers and maybe even lower its wage bill, without sacrificing output. Although, according to the theory lowering the wages will actually lower worker productivity and firm's profits. The reasons why the theory argues that lower wages lead to lower worker productivity is because of the following: * A firm that offers lower wages will fail to attract the best employees, which will gradually diminish its productivity levels.

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  9. Governments set economic objectives - Discuss the relative importance of each of these objectives - Can governments meet all these targets at once

    At the boom, GNP will be high, as will consumption and investment. Due to high demand, disposable income is high, as are profits and wages. Recessions occur when incomes and output begin to fall. Demand for goods and services fall, thus workers start to be laid off. This is illustrated in Figure 4.0 below. Figure 4.0 - Cyclical unemployment In the slump, unemployment levels are the highest and business failures increase, In the recovery stage, income and output begin to increase, firms invest more, consumers spend more, firms are able to take on more workers, therefore unemployment falls and employment rises.

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  10. Identify the causes of unemployment and suggest suitable remedies

    However, an unemployment rate of 5% means that unemployment is very low regardless of the total population. b) The alternative and, now more popular method is a survey: a sample of addresses is extracted from the Postcode Address File. Also, small cross-section of addresses of NHS and Health trust accommodation is included in the survey and anyone aged 16 or over and at boarding school or living in a hall of residence is included in their parent's household. A stratified random sample is included and within any continuous thirteen week period, every postcode sector is sampled.

    • Word count: 3410
  11. How have the Rates of Inflation in the UK Changed Since the Monetary Policy Committee was Established in 1997?

    The Committee's role is to deliver price stability, as defined by the government's policy on inflation, by adjusting the interest rates in the short term to either increase or decrease the population's spending power. Before the MPC was established and the Bank of England made independent the decisions on whether or not interest rates would be changed were made by the government at the time. This meant that the decisions were not always made in the best interests of the economy but to gain some short-term support for the government.

    • Word count: 5837

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