Chapter 45 Gov Policy Objectives Flashcards
(10 cards)
What are the government policy objectives?
•Low stable Inflation
•Balance of payments stability
•Low short unemployment
•Economic growth
•Economic development
•Sustainability
•Redistribution of income and wealth
How to achieve Objective for inflation?
Set their central banks target for inflation rate to achieve
What factors affect them achieving target inflation rate?
Inflation rate of other countries because they might be importing raw materials and if not found elsewhere production costs go up and so will inflation rate.
Governments ability to implement anti inflation policy tools is influenced by other countries and what their gov and central banks do.
If tax might go up in one country and not other workers might leave
Objective for balance of payments?
Total of the credit items in the current account of the balance of payments = total debit items in the long run
Why do they seek to achieve this objective for balance of payments?
Current account deficit can reduce AD and cause external debt.
Surplus can be inflationary and can involve opportunity cost of forgone imports.
Objective for Unemployment?
Low and short duration
Why do they seek the objective for unemployment?
Quicker unemployed return to work the less will be lost and lower gov spending on benefits
Why do they aim for economic growth or an increase in growth rateit?
They aim for it if the economy has been experiencing a negative output gap. By using fiscal or expansionary monetary policies.
Why do governments want redistribution of income?
They take from the rich and give it to the lower bracket s in the form of benefits or provision of goods and services such as free healthcare and subsidised hiusing
They take from the rich and give it to the lower bracket s in the form of benefits or provision of goods and services such as free healthcare and subsidised housing
