The four main macroeconomic objectives are economic growth, low unemployment, stable inflation rate, and a balance of payments on the current account.
Other objectives: balanced budget, less environmental damage and less income inequality.
Demand-side policies are used to control the inflation rate and can help to achieve the macroeconomic objectives.
Monetary policy: use of interest rates to shift the AD curve.
The Monetary Policy Committee from the Bank of England set the Bank Rate every month.
Interest rates: cost of borrowing or reward for saving.
Quantitative easing: new money can be created electronically by the Bank of England. This can be used to buy bonds, causing an increase in the money supply, pushing down market interest rates. The money disappears in the future after the bonds mature (paid back).
Fiscal policy: the use of government spending and taxation to shift the AD curve.
Expansionary fiscal policy: an increase in government spending or a decrease in taxation, leading to a right shift in AD.
A balanced budget: government spending = tax revenue.
A budget deficit: government spending > tax revenue.
A budget surplus: government spending < tax revenue.
National debt: the accumulation of the budget deficit over a number of years.
High national debt can lead to difficulty borrowing money in the future, and higher interest payments, causing greater debt.
A direct tax is is paid directly by the taxpayer to the government e.g. income tax.
Indirect taxes can be passed on e.g. VAT can be passed on from businesses to consumers.