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Economics: SL Revision Notes

SL IB Economics

Revision Notes

Home / IB / Economics / SL / Revision Notes / 3. Macroeconomics / 3.3 Macroeconomic Objectives / 3.3.1 An Introduction to Macroeconomic Objectives


3.3.1 An Introduction to Macroeconomic Objectives


Economic Growth

  • Economic growth is a central macroeconomic aim of most governments
  • Many developed nations have an annual target rate of 2-3%
    • This is considered to be sustainable growth
    • Growth at this rate is less likely to cause excessive demand pull inflation
  • Politicians often use the economic growth rate as a metric of the effectiveness of their policies and leadership
  • Economic growth has positive impacts on confidence, consumption, investment, employment, incomes, living standards and government budgets

united-kingdom-gdp-growth-rate-2022-06-13-macrotrends

The economic growth rate of the UK since 1998
Source: Macrotrends


Some of the Economic Growth Trends in the UK Since 1998


1998 - 2007


2008 - 2015


2016 - 2019


2020 - 

  • Steady growth fluctuating between 2-4%

  • Global financial crisis followed by a rapid bounce back due to government intervention - and then steady growth

  • Gradual disinflation possibly due to future expectations regarding the impact of the Brexit vote

  • Supply chain issues due to Brexit. Decreased consumption due to the impact of Covid 19. These created a deep recession (short-lived due to government intervention)

Low Unemployment

  • The target unemployment rate for many economies is between 2-5%. In December 2022 the unemployment rate in the USA was 3.7% and in Singapore it was 2.6%

  • Low unemployment rates like this are close to the full employment level of labour (YFE)
    • There will always be a level of frictional, seasonal and structural unemployment
    • This makes it impossible to achieve 100% employment and is called the natural rate of unemployment (NRU)

  • Different economies have different unemployment rates that are considered to be close to the full employment level of labour e.g. Japan's level is about 2.5% while India's is about 5.7%

  • Within the broader unemployment rate, there is an increased emphasis on the unemployment rate within different sections of the population
    • E.g. youth unemployment, ethnic/racial unemployment by group
      • In 2021, black unemployment in the UK was 11% and white unemployment was 4.%

united-kingdom-unemployment-rate-2022-06-14-macrotrends

The unemployment rate in the UK from 1998 - 2020
Source: Macrotrends

 

  • Unemployment tends to be inversely proportional to real GDP growth
    • When real GDP increases, unemployment falls
    • When real GDP decreases, unemployment rises

Low and Stable Rate of Inflation

  • Many economies have a target inflation rate of 2% using the Consumer Price Index (CPI)

  • A low rate of inflation is desirable as it is a symptom of economic growth

  • The different causes of inflation (cost push or demand pull) require different policy responses from the Government
    • Demand-side policies ease demand pull inflation
    • Supply-side policies ease cost push inflation

2-1-2-inflation---worked-example_edexcel-al-economics

The inflation rate in the UK from 2012 to 2021 using the CPI

 

  • In the UK, a continual deviation from the target of 2% would not be considered stable
    • An inflation rate in April 2022 of 4-5% was considered to be unstable, eroding household purchasing power
    • By October 2022 the inflation rate had risen to 11.1%
       
  • A low and stable rate of inflation is important as it
    • Allows firms to confidently plan for future investment
    • Offers price stability to consumers


  • 1. Introduction To Economics
    • 1.1 What Is Economics?
      • 1.1.1 Economics as a Social Science
        • 1.1.2 The Problem of Choice
          • 1.1.3 The Production Possibilities Curve Model (PPC)
            • 1.1.4 Modelling the Economy
            • 1.2 How Do Economists Approach The World?
              • 1.2.1 Economic Methodology
                • 1.2.2 Economic Thought
              • 2. Microeconomics
                • 2.1 Demand
                  • 2.1.1 Demand, Price & Quantity
                    • 2.1.2 Non-Price Determinants of Demand
                    • 2.2 Supply
                      • 2.2.1 Supply, Price & Quantity
                        • 2.2.2 Non-Price Determinants of Supply
                        • 2.3 Competitive Market Equilibrium
                          • 2.3.1 Market Equilibrium & Disequilibrium
                            • 2.3.2 Functions of the Price Mechanism
                              • 2.3.3 Consumer & Producer Surplus
                              • 2.4 Price Elasticity of Demand (PED)
                                • 2.4.1 Definition, Calculation & Determinants of PED
                                  • 2.4.2 The Significance of PED
                                  • 2.5 Income Elasticity of Demand (YED)
                                    • 2.5.1 Definition, Calculation & Illustration of YED
                                    • 2.6 Price Elasticity of Supply (PES)
                                      • 2.6.1 Definition, Calculation & Determinants of PES
                                      • 2.7 Role of Government In Microeconomics
                                        • 2.7.1 Reasons For Government Intervention In Markets
                                          • 2.7.2 Government Intervention: Indirect Taxes & Subsidies
                                            • 2.7.3 Government Intervention: Price Controls, Direct Provision & Regulation
                                            • 2.8 Market Failure: Externalities & Common Pool (Access) Resources
                                              • 2.8.1 Market Failure
                                                • 2.8.2 Negative Externalities
                                                  • 2.8.3 Positive Externalities
                                                    • 2.8.4 Common Pool (Access) Resources
                                                      • 2.8.5 Government Intervention to Address the Market Failure
                                                        • 2.8.6 Other Interventions to Address the Market Failure
                                                        • 2.9 Market Failure: Public Goods
                                                          • 2.9.1 Public Goods
                                                        • 3. Macroeconomics
                                                          • 3.1 Measuring Economic Activity
                                                            • 3.1.1 National Income & The Circular Flow of Income
                                                              • 3.1.2 National Income Terminology & Calculations
                                                                • 3.1.3 The Business Cycle
                                                                  • 3.1.4 Appropriateness of Using GDP/GNI to Measure Well-being
                                                                    • 3.1.5 Alternative Measures of Well-Being
                                                                    • 3.2 Variations in Economic Activity (AD & AS)
                                                                      • 3.2.1 Aggregate Demand (AD)
                                                                        • 3.2.2 Short-Run Aggregate Supply (SRAS)
                                                                          • 3.2.3 Alternative Views of Aggregate Supply (AS)
                                                                            • 3.2.4 Shifts of the Long-Run Aggregate Supply (LRAS)
                                                                              • 3.2.5 Macroeconomic Equilibrium
                                                                              • 3.3 Macroeconomic Objectives
                                                                                • 3.3.1 An Introduction to Macroeconomic Objectives
                                                                                  • 3.3.2 Economic Growth
                                                                                    • 3.3.3 Low Unemployment
                                                                                      • 3.3.4 Low & Stable Rate of Inflation
                                                                                        • 3.3.5 Potential Conflicts Between Macroeconomic Objectives
                                                                                        • 3.4 Inequality & Poverty
                                                                                          • 3.4.1 Measuring Inequality & Poverty
                                                                                            • 3.4.2 Causes of Inequality & Poverty
                                                                                              • 3.4.3 Using Taxation to Reduce Inequality & Poverty
                                                                                                • 3.4.4 Other Policies to Reduce Inequality & Poverty
                                                                                                • 3.5 Demand Management: Monetary Policy
                                                                                                  • 3.5.1 An Overview of Monetary Policy
                                                                                                  • 3.6 Demand Management: Fiscal Policy
                                                                                                    • 3.6.1 An Overview of Fiscal Policy
                                                                                                    • 3.7 Supply-Side Policies
                                                                                                      • 3.7.1 An Overview of Supply-Side Policies
                                                                                                        • 3.7.2 The Effectiveness of Supply-Side Policies
                                                                                                      • 4. The Global Economy
                                                                                                        • 4.1 Benefits of International Trade
                                                                                                          • 4.1.1 The Advantages of Free Trade
                                                                                                          • 4.2 Types of Trade Protection
                                                                                                            • 4.2.1 Tariffs
                                                                                                              • 4.2.2 Quotas
                                                                                                                • 4.2.3 Export Subsidies
                                                                                                                  • 4.2.4 Administrative Barriers
                                                                                                                  • 4.3 Arguments For & Against Trade Protection
                                                                                                                    • 4.3.1 Arguments For & Against Trade Protection
                                                                                                                    • 4.4 Economic Integration
                                                                                                                      • 4.4.1 Understanding Economic Integration
                                                                                                                        • 4.4.2 Types of Trading Blocs
                                                                                                                          • 4.4.3 The World Trade Organisation (WTO)
                                                                                                                          • 4.5 Exchange Rates
                                                                                                                            • 4.5.1 Types of Exchange Rate Systems
                                                                                                                              • 4.5.2 Causes & Consequences of Exchange Rate Fluctuations
                                                                                                                              • 4.6 Balance of Payments
                                                                                                                                • 4.6.1 Components of the Balance of Payments
                                                                                                                                • 4.7 Sustainable Development
                                                                                                                                  • 4.7.1 The Sustainable Development Goals
                                                                                                                                  • 4.8 Measuring Economic Development
                                                                                                                                    • 4.8.1 Single Indicators of Development
                                                                                                                                      • 4.8.2 Composite Indicators of Development
                                                                                                                                        • 4.8.3 Evaluating the Different Approaches
                                                                                                                                        • 4.9 Barriers to Economic Growth & Development
                                                                                                                                          • 4.9.1 Poverty Traps
                                                                                                                                            • 4.9.2 Economic, Political & Social Barriers
                                                                                                                                            • 4.10 Economic Growth & Development Strategies
                                                                                                                                              • 4.10.1 Trade Strategies, Diversification & Social Enterprise
                                                                                                                                                • 4.10.2 Market-Based & Interventionist Policies
                                                                                                                                                  • 4.10.3 Merit Goods & Inward Foreign Direct Investment
                                                                                                                                                    • 4.10.4 Foreign Aid & Development Assistance
                                                                                                                                                      • 4.10.5 Institutional Change
                                                                                                                                                        • 4.10.6 Evaluating Market Orientated Approaches Versus Government Intervention
                                                                                                                                                          • 4.10.7 Progress Towards Sustainable Development Goals

                                                                                                                                                        Author: Steve



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