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Government aims and policies Flashcards

chapter 24

1
Q

name the economic objectives/ aims of the government

A
  1. achieve full employment
  2. achieve sustainable economic growth
  3. control of government finances
  4. promote balanced regional development
  5. improve infrastructure
  6. create a just social environment/ ensure equal distribution of wealth
  7. control price inflation
  8. maintain state services
  9. broaden the tax base
  10. care for the environment
  11. achieve equilibrium of the balance of payments
  12. stabilize the banking sector
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2
Q

define full employment!

A

… a situation in which employment is available for all those prepared to work at existing wage levels

it occurs when the labour force is fully employed in productive work.

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3
Q

what are the economic benefits of a full employment economy in Ireland ?

A
  1. REDUCED SOCIAL WELFARE BILL
  2. INCREASED AGGREGATE DEMAND WITHIN THE ECONOMY / ECONOMIC GROWTH
  3. INCREASED STANDARD OF LIVING
  4. INCREASED GOVERNMENT TAX REVENUES
  5. INCREASED INVESTMENT
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4
Q

What are the economic difficulties of a full employment economy in Ireland?

A
  1. possible labour shortages
  2. wage demands
  3. inflationary pressures
  4. pressure on state infrastructure
  5. deterioration/ loss of services
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5
Q

what does sustainable economic growth look like?

A

economic growth is when the average income per head of population increases without any fundamental change in the structure of society.

this growth results an increase in the standard of living for a country’s citizens.

benefits significantly outweigh any costs

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6
Q

how can a government strategically achieve economic growth?

A
  1. providing an economic infrastructure in which private industry can survive and flourish (reduce VAT for the service industry)
  2. adopt fiscal and monetary policies that stimulate private industry (low rates of corporation tax and low interest rates for start-ups)
  3. promoting government policies designed to encourage the private sector (e.g. grants and training schemes)
  4. lowering the minimum wage rate
  5. sponsoring state training corporations
  6. reducing bureaucracy (state regulations) for companies
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7
Q

what are the positive economic consequences of economic growth?

A
  1. increased employment
  2. improved government finances
  3. effect on balance of payments
  4. improved standard of living
  5. effects on migration
  6. investment opportunities
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8
Q

what are the negative consequences of economic growth?

A
  1. inflationary pressures
  2. labour shortages
  3. damand for wage increases
  4. increased demand for imports
  5. pressure on the housing market
  6. pressure on state infrastructure
  7. increased immigration/ displacement of population
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9
Q

what are the positive consequences of an economy in decline?

A
  1. lower inflation
  2. labour shortages
  3. falling demand for wage increases
  4. reducing demand for imports
  5. less pressure in the housing market
  6. expectation of citizens
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10
Q

what are the negative economic consequences of an economy in decline?

A
  1. increased unemployment
  2. falling government finances
  3. lower standard of living
  4. effects on migration
  5. investment opportunities
  6. less funds for infrastructure
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11
Q

control of government finances

A

page 361/362

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12
Q

define regional development!

A

all regions share in the economic growth of the country

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13
Q

policies to achieve balanced regional development…

A
  1. decentralize the public service
  2. tax and other incentives to attract industry
  3. investment in the infrastructure
  4. investment in communication
  5. develop/ promote educational opportunities in the regions
  6. improved access to and from other regions
  7. easing planning restrictions in building residential property
  8. providing leadership programmes
  9. government spatial strategy
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14
Q

can the government experience conflicts when trying to implement a balanced regional development policy?

A
  • property prices can increase in certain areas
  • expenditure on infrastructural improvement
  • policies to achieve industrial development V policies to promote tourism in regional locations
  • increased regional industrialisation because of increased social costs such as pollution, congestion and increased local government changes
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15
Q

how can the government improve infrastructure?

A
  1. development of road infrastructure
  2. provision of public transport
  3. development of airports and seaports
  4. significant increase in the quality of telecommunications infrastructure
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16
Q

what is meant by a social policy?

A

…refers to the provision of income and/or services for those who would find it difficult to provide for themselves if exposed to the full rigors of the market economy.

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17
Q

what is meant by an equitable distribution of income?

A

that the gap between rich and poor is not excessive, but still enough to create incentives to work.

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18
Q

what is meant by a loss of competitiveness ?

A

a situation where our goods abroad are less attractive to foreign buyers.

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19
Q

benefits of a controlled price inflation.

A
  1. stabilizes the cost of living
  2. prevents demand for wage increases
  3. keeps Irish industry internationally competitive
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20
Q

why does the government seek to control inflation?

A
  1. if our inflation rate is higher than our competitors’ we would see a loss of competitiveness (less exports)
  2. difficulty in encouraging foreign industrialists to invest in Ireland if our costs of production are high (e.g. higher wages)
  3. workers and their representatives will try to negotiate increased wages during inflationary times to compensate for a loss in their existing purchasing power.
  4. suffering of the economical weaker section of the community. (e.g. pensioners, recipients and social welfare benefits or anyone on a fixed income.
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21
Q

what state services must always be maintained by the government?

A
  1. health services
  2. schools, education system
  3. adequate housing
  4. future pensions and help redistribute income
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22
Q

what are the positive consequences of a government policy to increase public service charges?

A
  1. less pressure to increase taxes or borrowings
  2. more efficient use of services
  3. target the use od resources more economically
  4. pressure to improve quality of service
  5. lower tax base
  6. uses of revenue collected
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23
Q

what are the negative consequences of a government policy to increase public service charges?

A
  1. increased cost of living
  2. increased inflation
  3. affects lower-income groups most
  4. viability of partnership agreements
  5. inequity / fairness
  6. higher cost for business
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24
Q

why does the gov. aim to broaden the tax base?

A

past: relied too much on the property boom for taxation revenue.
now: gov. has to find new ways to generate taxation revenue

  • new taxes (wider tax base)
  • eliminating tax evasion
  • workers into income tax net

the money is vital for the country, partticullary when pulling itself out of recession.

25
Q

why and how does the gov. care for the environment?

A

-protect environment from misuse and overuse.

  1. implement policies
  2. educate citizens (e.g. recycling )
26
Q

why does the gov. aim to achieve equilibrium of the balance of payments?

A

especially countries with other currencies.

  1. if exports are greater then imports, demand for a countries currency will exceed supply, putting upward pressure on that currency.
  2. if imports are greater, the opposite will occur.
27
Q

why does the gov. aim to stabilize the banking sector?

A
  • to avoid uncertainty and fear in both the government and the economy.
  • revitalise credit availability and confidence among domestic and international investors.
28
Q

what are the instruments in achieving economic aims and objectives?

A
  1. monetary policy
  2. fiscal policy
  3. exchange rate policy
  4. direct intervention
  5. deregulation
  6. prices and incomes policy
  7. economic planning
29
Q

describe monetary policy as an instrument to achieve economic objectives!

A

…actions by the European central bank that influence:

  1. money supply via changing the amount of money in circulation
  2. interest rates via changing the ECB base rate on which all variable rates depend
  3. the availability of credit via changing the rules on issuing loans.
30
Q

describe fiscal policy as an instrument to achieve economic objectives!

A

…any actions taken by the gov. that influences the timing, magnitude and structure of government current revenue and expenditure.

…carried out by increasing or decreasing tax and increasing or decreasing government spending

e.g. increasing PAYE

31
Q

what is the exchange rate policy?

A
  • directly controlled by the ECB and refers to the devaluation and revaluation of the euro in terms of other currencies.
32
Q

describe direct intervention by the government!

A

…refers to the gov.’s ability to directly intervene in the economy in order to achieve its aims and objectives.

…achieved by passing legislation (e.g. minimum wage) and setting up semi-state bodies (e.g. an post and the department of health)

33
Q

describe deregulation by the government!

A

regarded as a form of direct intervention and involves the government changing laws and practices that it deems detrimental to completion

e.g. the taxi industry

34
Q

what is the price and incomes policy?

A

method to control inflation by restraining prices and incomes. implemented by imposing wage freezes or strict limits on wage increases, setting maximum prices for certain items and gov approval on price increases for companies.

-not relevant to the Irish situation, but to other countries

35
Q

describe economic planning by the government!

A

involves consultation with the social partners (i.e. IBEC , ICTU, IFA and voluntary and community organisations.)

aim : to discuss and agree on a wide range of economic policies with a view to improving the standard of living for all citizens (e.g. national development plan and towards 2016)

36
Q

what instruments are used by a government aiming for full employment?

A
  1. FISCAL POLICY
    reducing taxation - increases demand - increase in production - increases employment.
  2. MONETARY POLICY
    reduce interest - makes the economy more attractive for investment - increased demand for labour
  3. EXCHANGE RATE POLICY
    devaluate the currency - exports become cheaper - increased demand for domestic products - increased labour-demand
  4. DIRECT INTERVENTION
    increased employment in the public sector and the provision of retraining and resettlement encourages mobility of labour,…
  5. PRICES AND INCOME POLICY
    encourage low wage inflation enables employers to employ more people
  6. ECONOMIC PLANNING
    discussions with various social partners - proper identification of labour requirements
37
Q

what instruments are used by a government aiming for economic growth?

A
  1. FISCAL POLICY
    reducing taxation on company profits (e.g. corporation tax) and labour (e.g. income tax) - more attractive investment environment
  2. MONETARY POLICY
    reducing interest rates leads to an increase in the production of goods and services - increased employment & more disposable income
  3. DIRECT INTERVENTION
    establish semi-state companies to produce the g&s that the private sector is unwilling to provide
  4. ECONOMIC PLANNING
    allows for realistic economic targets to be set for the various sectors of the economy (e.g. the national development plan)
38
Q

what instruments are used by a government aiming for controlled government finances?

A

FISCAL POLICY
reducing gov expenditure and lowering current borrowings enables the govenment to better control national dept.

e.g. NTMA

39
Q

what instruments are used by a government aiming for balanced regional development?

A

FISCAL POLICY
increase the provision of grants and subsidies to companies that are willing to locate and operate their business from less developed areas of the country.

ECONOMIC PLANNING
balanced regional development can be achieved through working closely with the social partners and implementing the National Spatial Strategy for Ireland 2002-2020

40
Q

what instruments are used by a government aiming for a provision of adequate infrastructure?

A
  1. FISCAL POLICY
    increase gov. expenditure on the improvement of infrastructural goods and services (e.g. toll roads, airports, schools, hospitals, telecommunications)
  2. DIRECT INTERVENTION
    establish Public Private Partnership (PPP)
    i.e. combine forces with private enterprise to provide g&s
  3. ECONOMIC PLANNING
    promoting PPP’s
    define PPP’s as partnerships between public sector organizations and private sector investors and businesses for the purposes of designing, planning, financing, constructing and operating infrastructure projects
41
Q

what instruments are used by a government aiming for a just social policy/ distribution of wealth?

A
  1. FISCAL POLICY
    increase in tax for higher-income earners will achieve more equal distribution of wealth.
    reduction in tax on necessities and increased spending on social welfare benefits.
42
Q

what instruments are used by a government aiming for controlled inflation?

A
  1. FISCAL POLICY
    lowering indirect tax allows prices for g&s to decrease
    increase in direct taxation results in a reduction in consumption…
  2. MONETARY POLICY
    increase interest rates - decrease in demand for loans by consumers - less consumption
  3. PRICES AND INCOME POLICY
    impose strict price controls and wage freezes
  4. ECONOMIC PLANNING
    negotiations national wage agreements can control increased demands for wages and escalating prices (e.g. Towards 2016)
43
Q

what instruments are used by a government aiming to maintain state services?

A

FISCAL POLICY
increase in gov. expenditure will ensure that state services such as schools and hospitals are available to meet demand for citizens.

increase in both direct and indirect taxation would increase the amount in the exchequer to be spent on funding state services

44
Q

what instruments are used by a government aiming to broaden the tax base?

A

FISCAL POLICY
increase the numbers of people paying tax in Ireland
e.g.:
- lower the thresholds so that lower-income earners start paying tax
- lower tax bands so that more people pay the higher rate of tax
-introduce the property tax

45
Q

what instruments are used by a government caring for the environment?

A

FISCAL POLICY
increasing indirect taxes - the extra revenue can be used to pay for the costs of repairing the damaged environment
e.g. carbon tax and plastic bag levy

46
Q

what instruments are used by a government aiming for a equilibrium of the balance of payments?

A
  1. FISCAL POLICY
    increase direct taxes - reduces disposable income - reduces the ability to purchase imports
  2. MONETARY POLICY
    increase interest rates - reduce the amounts of loans demanded - reduces imports
  3. EXCHANGE RATE POLICY
    devaluing the currency, exports will become much cheaper and imports more expensive.
47
Q

what instruments are used by a government aiming for stability in the banking sector?

A
  1. FISCAL POLICY
    expenditure to recapitalize Irish banks - strives to instil greater confidence in consumers
  2. MONETARY POLICY
    if the ECB decreases interest rates, the cost of credit falls, people borrow more, creates investment and consumption.
    if the ECB or Irish central bank increases the primary liquidity ratio, banks must increase their capital - making them stronger.
  3. DIRECT INTERVENTION
    pass laws that will protect consumers in the wake of a banking crisis (e.g. state guarantee on depositors’ savings)
48
Q

describe the possible conflict between the control of government finances vs. full employment!

A

policies that increase emloyment levels also increase government expenditure.

e.g. jobs initiative 2011 - gov. imposed a levy on pensions as opposed to using existing monies in the exchequer to finance direct employment stimuli

49
Q

describe the possible conflict between the control of gov. finances vs. provision of infrastructure !

A

Irish infrastructure - often financed by gov. borrowings

if gov. invest in capital projects - increases gov. spendings

this expenditure does not necessarily bring about a direct or immediate return on investment

50
Q

describe the possible conflict between the control of gov. finances vs. economic growth.

A

needs to keep expenditure as low as possible while increasing revenue - higher taxes.
deflationary effect will stunt economic growth and property.

51
Q

describe the possible conflict between the control of gov. finances vs. control of inflation

A

increasing employment - gov. needs to increase its public spending, decrease taxes and/or reduce interest rates.

result: more employment - higher wages - more disposable income - greater demand - increased prices and high inflation.
counterproductive: if the gov. tries to control inflation by increasing interest rates - reduces consumer spending & detracts investment away from the country - job losses and increasing unemployment.

52
Q

describe the possible conflict between the control of gov. finances vs. balance of payments equilibrium !

A

creation of employment - consumers having more disposable income - greater demand for choice of goods

increased spending on imports - results in an outflow (leakage) of wealth

increase in industrial activity means an increase in production and the demand for raw materials and machinery.

53
Q

describe the possible conflict between aiming for balances regional development vs. maintaining state services!

A

if the gov. provides grants or tax incentives to firms locating in underdeveloped areas of Ireland (north-west) - gov. expenditure increases.

high expenditure on balanced regional development would mean that less money is spend on state services (health&education)

54
Q

describe the possible conflicts for a government aiming for economic growth vs. just social policy !

A

to achieve a just social policy and more equal distribution of wealth the gov. must increase taxes on high-income earners and use the revenue on social welfare benefits.

but… these high-income earners are generally the wealth creators of the country - may now choose to leave the country because of the tax system.
absence of investment could seriously impede our economic growth.

and… ‘over-generous’ social welfare system may discourage people to get back into the workforce.

55
Q

define nationalisation !

A

…means taking a company or asset in the private sector into public ownership by a government.

56
Q

define privatisation !

A

…used to describe the sale or transfer of public sector assets to the private sector.

e.g. eircom and greencore

57
Q

state a few economic arguments in favor of privatization ?

A
  1. IMPROVED CHOICE/QUALITY OF G/S
  2. MORE COMPETITIVE PRICES
  3. CONTINUITY OF SUPPLY
  4. EMPLOYMENT OPPORTUNITIES
  5. MORE REWARDS/INCENTIVES FOR INNOVATION
  6. REVENUE FROM SALE MAY HELP REDUCE CURRENT/FUTURE TAXES/OPPORTUNITY COST
58
Q

State a few economic arguments against privatisation !

A
  1. LOSS OF NON-PROFIT-MAKING SERVICES
  2. STANDARDS OF SERVICES
  3. PREFERENCE TO MEET SHAREHOLDER’S DEMANDS
  4. LOSS OF JOBS/ REDUCED JOB SECURITY/ INCREASED SOCIAL WELFARE BILL
  5. CURTAILMENT IN PAY/ PENSIONS INCREASES / WORKING CONDITIONS
  6. LOSS OF A VALUABLE STATE RESOURCE
  7. COST OF SALE
  8. FOREIGN OWNERSHIP OF IRISH COMPANIES

economics (28 decks)

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