Study Notes
Governments have macroeconomic policy objectives such as maintaining price stability, achieving low unemployment, and fostering economic growth.
- Price Stability — maintaining a low and stable inflation rate. Example: Central banks may set an inflation target of 2% with a 1% margin.
- Low Unemployment — minimizing unemployment to increase output and tax revenue. Example: Governments promote labor mobility through training schemes.
- Economic Growth — achieving a balanced growth rate to avoid inflation and unemployment. Example: Considering labor force size and productivity changes to determine optimal growth.
Exam Tips
Key Definitions to Remember
- Price Stability
- Low Unemployment
- Economic Growth
Common Confusions
- Zero inflation is not the same as price stability.
- Low unemployment does not always mean high-quality jobs.
Typical Exam Questions
- Assess the possible consequences of a higher rate of economic growth for an economy such as Taiwan? Answer: Discuss potential inflationary pressures and unsustainable business practices.
- A country is experiencing cost-push inflation, structural unemployment, and falling output. Which macroeconomic policy objective(s) would be likely to be achieved if the skills of workers increase? Answer: Low unemployment and economic growth.
- Country Y experiences a lower economic growth rate than Country Z. Why might Country Y’s government be happier with its economic performance than Country Z’s government? Answer: Country Y may have invested more in worker training, leading to sustainable growth.
What Examiners Usually Test
- Understanding of why zero inflation is not the goal.
- The impact of unemployment on the economy.
- The balance needed in economic growth to avoid negative consequences.