A minimum wage is a legal minimum for workers. It means workers are guaranteed a certain hourly wage – helping to reduce relative poverty. However, a minimum wage could have potential disadvantages – in particular, there is the risk of creating unemployment as firms cannot afford to employ workers. “It has always been a mystery …
A look at the main macroeconomic objectives (economic growth, inflation and unemployment, government borrowing) and possible conflicts between these different macro-economic objectives. The main macro-economic objectives Economic growth – positive and sustainable growth (The UK, long-run trend rate is around 2.5%) Low inflation (UK target 2% +/-1) – Low unemployment / Full employment (e.g. around …
Externalities occur when producing or consuming a good cause an impact on third parties not directly related to the transaction. Externalities can either be positive or negative. They can also occur from production or consumption. For example, just driving into a city centre, will cause external costs of more pollution and congestion to those living …
Definition An economic good is a good or service that has a benefit (utility) to society. Also, economic goods have a degree of scarcity and therefore an opportunity cost. This is in contrast to a free good (like air, sea, water) where there is no opportunity cost – but abundance. Free goods cannot be traded …
Investment influences the rate of economic growth because it is a component of aggregate demand (AD) and more importantly influences the productive capacity of the economy. (LRAS) An increase in investment should be a boost to economic growth. Readers Question: Discuss the importance of investment in increasing economic growth. Investment means expenditure on capital spending, …
A fixed exchange rate occurs when a country keeps the value of its currency at a certain level against another currency. Often countries join a semi-fixed exchange rate, where the currency can fluctuate within a small target level. For example, the European Exchange Rate Mechanism ERM was a semi-fixed exchange rate system. Summary The idea …
The tax burden refers to the share of GDP that is collected in different forms of tax within an economy. For example, in an economy with a size of £1,000bn – if the government collects tax of £300bn, then the tax burden will be 30%. The tax burden gives a strong guide to the extent …
Does economic growth conflict with the objective of the balance of payments stability? UK economic growth and current account balance Both economic growth and balance of payments are macroeconomic objectives. Economic growth is an increase in real GDP – leading to higher living standards. Balance of payments stability refers to a sustainable or limited current …