Macroeconomics Essay

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Chapter 59- The macroeconomic objectives of government Key terms: * Macroeconomics- study and analysis of the behaviour of the whole economy. * Inflation- persistent general tendency of prices in the economy to rise. * Deflation- the opposite of inflation, when there is a persistent tendency for prices in the economy to fall. * Globalisation- ability of multinational companies to purchase inputs, make products and sell them all over the world. * In real terms- adjusted for the effects of price rises. * Economic growth- increase in the volume of goods and services produced each year. * Balance of trade- difference between the value of exports and imports. If exports exceed imports, there is a balance of trade surplus; if imports exceed exports, there is a balance of trade deficit. * Imports- purchase by UK business and consumers of products made abroad. * Exports- sale of products from UK businesses abroad. * Market failure- where a market does not produce the desired outcome. In the case of the labour market, it means that there is unemployment. Four main objectives of the govnt: 1. A low and stable rate of inflation. 2. A high level of employment. 3. Economic growth. 4. A balance of payments equilibrium. A low and stable rate of inflation High inflation is bad for the economy and therefore businesses. It makes UK exports uncompetitive and as a result of globalisation, the same product can be made anywhere else. If inflation is high, prices rise and international customers go to other countries for business. It may affect investment as companies want to produce in countries with the lowest inflation as their products may be produced cheaply. Inflation creates uncertainty on what the return on investment may be. Managers may not be able to ascertain how much return they may get in real terms (what

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