Study Notes
Macroeconomic objectives include maintaining a surplus or balance on the current account of the balance of payments, protecting the environment, and redistributing income to reduce inequality and poverty.
- Current Account — part of the balance of payments showing the value of imports and exports. Example: A country with more exports than imports has a current account surplus.
- Exchange Rate — the price of one currency in terms of another. Example: A stronger currency makes exports more expensive and imports cheaper.
- Income Inequality — the difference in income between different groups in society. Example: High-income earners pay more taxes under progressive taxation.
- Absolute Poverty — lacking resources to meet basic needs. Example: People without access to food, shelter, or healthcare.
- Relative Poverty — poverty defined relative to living standards in a society. Example: A person earning less than the median income in their country.
- Progressive Taxation — a tax system where higher earners pay a larger percentage of their income. Example: Tax rates increase as income increases.
Exam Tips
Key Definitions to Remember
- Current Account
- Exchange Rate
- Income Inequality
- Absolute Poverty
- Relative Poverty
Common Confusions
- Confusing current account surplus with a trade surplus
- Misunderstanding the impact of exchange rate changes on imports and exports
Typical Exam Questions
- What is a current account deficit? A situation where imports exceed exports.
- How does a strong currency affect the current account? It makes exports more expensive and imports cheaper, potentially worsening the deficit.
- What are the reasons for government intervention in income redistribution? To meet basic needs, raise living standards, and for ethical reasons.
What Examiners Usually Test
- Understanding of how exchange rates affect trade
- Reasons for and impacts of current account deficits and surpluses
- Government methods for reducing income inequality