1. Government objectives
Topic 9: aggregate demand and aggregate supply
Government objectives

2. Students should be able to:
Unit content
Students should be able to:
Identify the major current macroeconomic objectives (increase economic growth; reduce unemployment; control inflation; restore equilibrium in the Balance of Payments current account; balance the government budget; protect the environment; greater income equality)

3. What do governments try to improve?
They can compare their performance over time or with other countries
What is an objective?
The macroeconomic objectives of governments are listed on the next slide.

4. What are the macroeconomic objectives of a government?
Topic 9: aggregate demand and aggregate supply
What are the macroeconomic objectives of a government?
________________ economic growth
________________ in unemployment
_________ and __________ inflation
Balance of payments _______________ on current account
_______________ government budget
_______________ of the environment
______________ income equality

5. Economic growth – mind map
What is economic growth?
How is it measured?
What is the current rate?
Sketch the economic cycle and label the stages
Sketch the output gap
What is the multiplier?
What is marginal propensity to consume?
Why does the government want economic growth?

6. Employment and unemployment – mind map
What is unemployment?
What are the two measures?
What are the four causes?
Sketch a LRAS showing unemployment
What is the current %?
What are the costs of unemployment?
Why does the government want low unemployment?

7. What is inflation? How do we measure it?
Inflation – mind map
What is inflation? How do we measure it?
Why does the gov. want low & stable inflation?
Who is in charge in the UK?
What causes inflation?
Draw two diagrams showing the impact of: (i) a supply shock on SRAS (e.g. increase in oil prices) and inflation, (ii) an increase in AD on LRAS and inflation
Why does it matter if we have high inflation?

8. The annual change in the CPI is a measure of inflation.
Exam hint
The Consumer Price Index (CPI) is not a measure of inflation. What does it measure?
The annual change in the CPI is a measure of inflation.
What is the current rate of inflation?

9. Balance of payments – mind map
What is the UK balance of payments?
What is a current balance deficit (current account deficit)?
Why does a deficit on the current account matter?
What causes a deficit on the current account?

10. Government deficit v debt – mind map
Topic 9: aggregate demand and aggregate supply
Government deficit v debt – mind map
What is the difference between the (budget) deficit and the government (national) debt?
What are the current figures?
Why does it matter if they are increasing?

11. Why are environmental issues important for the government?
Why is protecting the environment difficult for the UK government?

12. Income redistribution – mind map
What causes income inequality?
How can it be redistributed?
What are the costs of inequality?

13. Students should be able to:
2.6.4 Unit content: conflicts and trade-offs between objectives and policies
Students should be able to:
Give examples of potential conflicts and trade-offs between the macroeconomic objectives
Assess the short-run Phillips curve
Assess potential policy conflicts and trade-offs (2.6.2 and 2.6.3)

14. Conflicting macroeconomic policies
There are often conflicts between macroeconomic policy objectives
E.g. increasing levels of growth may conflict with the aim of price stability why?
The pursuit of one objective may mean an opportunity cost in terms of another
This is referred to as a _______ where an increase in one area is traded for a decrease in the other

15. Research the UK situation February/March 2018
Topic 9: aggregate demand and aggregate supply
Research the UK situation February/March 2018

16. What is the Phillips curve?
The Phillips curve shows an ________ relationship between unemployment and inflation
Hence there is a ______ between low inflation and low unemployment.
But, in 1990 inflation was 10% and unemployment was 7%
In 2015 inflation was and unemployment

17. Stagflation
In the 1970s the Phillips curve seemed less helpful as the UK experienced stagflation – what does this mean?

18. Other possible conflicts
Topic 9: aggregate demand and aggregate supply
Other possible conflicts