Grade 8A IGCSE
____________________________________________________Cambridge University____________________
- 5.1.2:Discuss the possible effectiveness of government policies on the four basic objectives.
Last date for Submission:
May 2nd, 2014
Please Write Your Response in 750 Words
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There are 6 main objective of government of a country. Four of them are the most important objective of government they are low and stable inflation which is the biggest objective, high and stable employment, and position in international trade. Another 2 including equality and sustainable economic development of the country. Inflation is a general and sustainable rise in price level in a specific period. Inflation also can be defined as more aggregate demand than aggregate supply. High inflation may cause decrease in disposable income, increase in poverty, fall in value of money, increase in unemployment, and fall in standard of living. But there are also some parties that are benefited from rise of inflation such as debtor because they will pay less value of money because of inflation and producer because of high demand so producer increase production and increase aggregate supply to decrease inflation and increase employment rate and increase income tax for government which is the benefit of inflation. If the condition is aggregate supply is more than aggregate demand that is called deflation where prices of goods and services goes down. Most of inflation is caused by surplus of money supply issued by central bank in the society so people tends to spend more and create more demand than supply that can rise inflation.
ReplyDeleteUnemployment is the condition where willing worker ready to work at exist wage rate but fails to get a job. The risks of unemployment are decrease in disposable income, decrease in aggregate demand, increase in social tensions and decreasing public expenditure. Unemployment may be caused by recessions, less education, inappropriate technology, and rapid population.
Economic growth is also important because it’s use to raise national income or national output. If there is a less economic growth then there will be lower per capital income, lower disposable income, and lower tax income for the government.
International trade involves trade with rest of the world which involve export and import.
Demand side policy instruments measures total public revenue, overall expenditure, and rate of interest. Total public revenue and overall expenditure is included in a fiscal policy while rate of interest is included in monetary policy.
Fiscal policy measures public revenue, public expenditure, public debt, and public borrowing which deals with how to borrow money. Public revenue is divided into tax, penalty, fees or certain amount of money paid in exchange of service such as driving license, profits from public company, and disinvestment or when public company is sold to private company. There is two types of direct tax and indirect tax. Direct tax is paid directly to government ex : income tax. Indirect tax is paid indirectly to government such as service tax. Public expenditure are government expenses on public goods and services, public sector enterprise, infrastructures, capital investments, internal and external security measures, and current expenditure.
Monetary policy is the policy organized by central bank which dealing with money such as interest rate, bank rate, cash reserve ratio, and statuary liquidity ratio. Interest rate is the rate which we borrow form the commercial bank. Bank rate is the rate at which commercial bank borrow from central bank. Cash reserve ratio is the minimum amount of cash needed in a bank. Statuary liquidity ratio is the proportion of total money kept by commercial bank.
In order to achieve those four main government objective. Government use fiscal and monetary policy to achieve them. For example in fiscal policy, tax is used to control low and stable inflation of a country. So government will increase direct tax which will result in lower disposable income to decrease aggregate demand and decrease inflation. Tax also can be use to maintain high and stable employment because by charging lower direct tax so people are motivated to work and unemployment will decrease. As well as export and import can be control by tax because by charging higher custom tax people will consume less imported goods and result in decreasing amount of imported goods. In the same manner tax also can be use to gain economic growth because if government reduce the corporate tax it will encourage multinational companies to invest on their country to increase employment and gain economic growth.
ReplyDeleteIn monetary policy interest rate can be use by government to control inflation because if government increase interest rate people become less wanted to borrow money which decrease aggregate demand and decrease inflation. As well as if government increase cash reserve ratio it will force people to save more and borrow less which make aggregate demand decrease and reduce inflation.
Reference = Economic notebook
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Government play important role in a country. When they control a particular country, they will have some objectives that they want to achieve. This objectives include, low and stable inflation, high and stable employment, high and sustainable economic growth, and managing international trade (BOP). In order to achieve all these objectives, there is a policy instrument which can be used as the methods. There are two types of policy instrument, such as fiscal policy measure and monetary policy measure, both of them is demand-side policies. Fiscal policy measure is control by the government. There are three types of fiscal policy, such as public revenue, public expenditure, and public debt. Monetary policy measure have central bank whom control the monetary policy. There are four types of monetary policy, such as interest rate, bank rate, CRR (cash reserve ratio) and SLR (statutary liquidity ratio).
ReplyDeleteThe first objective is low and stable inflation. We can use public revenue to achieve this, by increasing the tax. As the tax increase, the price of a good will also increase automatically. People always want to buy cheap price of goods and services, so when the tax is increasing, the amount of demand will be less. As the result, market will not give high inflation. This can make government achieve the objective of having low and stable inflation. Government also can use contractionary fiscal policy to reduce the pressure on prices in the economy by cutting the aggregate demand through a reduction in public expenditure or by raising total taxation. But, government also can use monetary policy method, which is by increase the interest rate. As the interest rate increase, people will do less spending and will save more money, because when we spend money in a condition of high interest rate, it will result of higher price is paid. High interest rate also can reduce the amount of printing money, it is to maintain the value of the money and avoid inflation happen (keep it stable and low).
The second objective is high and stable employment. Unemployment can create many problems for a country such lower amount of tax for the government, lower infrastructure, and create lower standard of living. As the technology is improving, there are more machine that can work faster than a labour workforce, so business often prefer to use machinery than labour workforce, and this is one of the reason of increasing unemployment. We can solve this problem by creating a lower amount of interest rate. When interest rate is low, many new business want to established their own factory or company. This means that they will require a number of worker, so the amount of unemployment can reduce or in other words, having a high and sustainable employment. There is also other reason that can make a stable employment. When amount of taxes are too high, it will reduce the labour productivity, total outputs and profits. As productivity fall, cost of production in firm will increase, and they will be less able to compete on product price and quality. As the result, demand for their goods and services may fall and create unemployment. So, to avoid this happen, the amount of taxes should be low.
The third objective is high and sustainable economic growth. Economic growth in total output (for example the GDP – Gross Domestic Product) can increase the standard of living. Tax can affect the economic growth. There are two types of taxes which is direct taxes and indirect taxes. As the direct taxes decrease, the disposable will increase and will create the increasing of aggregate demand and result of higher output. While, when the indirect taxes decrease, the number of the production will increase, so the aggregate supply will also increase and result of the higher output. So, to conclude this, lower taxes can create higher output which can make high and sustainable economic growth.
ReplyDeleteAnd the last but not least, the fourth objective of the government is the stabilize or managing international trade. This is used to regulate BOP. Government can achieve this by having a corporate tax. Because, if there is corporate tax in a country, all the MNCs (multinational companies) will be encourage to go there and the international trade will increase as the result.
In conclusion, with two policies that government had, they can achieve all their four objectives, such as low and stable inflation, high and stable employment, high and sustainable economic growth and managing international trade (regulate BOP). Government can maintain stable inflation by increase tax, for example.
Vienetta christina 8A
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References :
1. http://voices.yahoo.com/economic-theory-advantages-disadvantages-unemployment-4045389.html
2. http://www.stlouisfed.org/publications/re/articles/?id=2
3. Economics book
4. Notebook
There are 2 government policy , which are fiscal policy and monetary policy. Fiscal policy involves varying the overall level of public expenditure and or taxation in an economy to manage aggregate demand and influence the level of economic activity. Monetary policy involves changes in the money supply and or interest rate to influence the level of aggregate demand , aggregate supply and economic activity. It is also used by a government to influence the exchange rate of its national currency against other foreign currency and, in so doing , to affect the level of international trade and transactions. The main instrument of monetary policy is the minimum lending rate or rate of interest charge by the central bank to loan money to the banking system in an economy. Rising or lowering the interest rate will affect the rate banks then charge to their business and persona customer to borrow money and the rate of interest savers earn on their saving account.
ReplyDeleteA fiscal policy measures are public revenue , public expenditure , public debt and borrowing. Monetary policy measures are interest rate, cost or revenue ratio , Statuary liquidity ratio. Bank rate. The four objectives of government policy are low and stable inflation , high and stable employment , managing international trade and transactions , High and stable economic growth. Public revenue will manage taxes, vees, penalty,profit . these revenue managed by fiscal policy .An sufficient wages , low taxes, low penalty will create high and stable employment. Inflation is causes by to much aggregate demand and rising cost, contractionary fiscal policy aims to reduce pressure on price in the economy by cutting aggregate demand through reduction in public expenditure and or by rising total taxation, such as cutting public sector wages and rising personal taxes will reduce total disposable income and consumer expenditure. Fiscal policy instrument may also used to res tribute income between rich and poor people in an economy, low and stable inflation , high and stable employment will achieved. Expansionary monetary policy involves a cut in interest rate and or expansion in the money supply to boost aggregate demand. This measure will often be taken when unemployment is rising and economic growth is falling or has turned negative during an economic recession. Contractionary monetary policy involves rising interest rate and or cutting the money supply to reduce aggregate demand if the economy is overheating and inflationary pressure and are rising. Exchange rate policy changes in interest rate can be used to influence the exchange rate of a national currency . an exchange rate is the rate at which one currency can be exchanged for another on the foreign exchange market. High and sustainable economic growth , managing international trade, low and stable inflation, will be achieved with monetary policy if government has a good monetary policy. Privatization , removing trade barrier , competition policy, selective tax intensive will help managing international trade( BOP will be achieved) national firm can compete with international firm in doing export and import
To be concluded, monetary and fiscal policy will help the four main objectives : low and stable inflation , high and stable employment , high and sustainable economic growth, managing international trade . that 4 objectives can be achieved if the government made the policy by taking into account of all the possible conditions
Reference : -Economics notebook
-Complete economics for cambridge igcse & O Level
Originality : 100% Unique Content
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ReplyDeleteIn general, government has 7 objectives to be achieved by them when they controls a country. The objectives are; Low and Stable inflation, High and stable unemployment, High and sustainable Economic growth, Stabilize international trade, Inequality, BOP (International Trade) and Sustainable economic development. And the most important 4 objectives government must achieve is Inflation, Employment,Economic growth and International trade. Therefore, there are some methods to help government achieve their objectives which is the policy instrument. There are two types of policy instruments; Fiscal policy and monetary policy. Fiscal policy is the policies undertaken by government. Which it is in form of : Public revenue; which involves in tax, Public expenditure; such as public goods and services, Public debt and Public borrowings. Monetary policy is a policies which deals with money. It includes interest rate, Bank rate, Cash reserve ratio(CRR) and Statutery liquidity ratio(SLR).
ReplyDeleteThe first objective that government need to achieve when they control the country is low and stable inflation. Nowadays, there are many country that has government who fails to control the country. which because of inflation. Inflation is the general rise in price level in a specific period. So if one day the price is rises, then each day all the price will also rise because they are continuous. There are lot of benefit if there is inflation; because inflation is good for producers and debtors, because due to inflation, profit rises, so producers and debtors will increase their production which increases employment and aggregate supply. So if controlled and stable inflation will increase employment. And if the inflation is unstable, it will increase the number of unemployment and decreases the aggregate demand of a country. The disadvantages of inflation is include; it can destroy the society and governemnt, fall in diposable income, increase poverty in a country, fall in value of money and the standard of living, reduces the purchasing power of people’s income, hardship for people on low incomes and it makes goods and services produced in the economy more expensive to buy.
The second objective is high and stable unemployment. Unemployment is the objectives that must be achieved by government to make their country not become a fail country. Unemployment is the willing worker who ready to work at existing wage rate but fails to get job. The advantage of unemployment is that it forces the une,ployed worker to re-allot resources, it also causes people to return to school to get a better knwoldege for their future. And the most important, unemploment increases self- employment. Because often unemployed people has an idea to create their own jobs to start working by themselves. Which lead to new companies and business forming and obviously a new business needs a lot of employees/ workers/ labor which help to reduce unemployment. There are some effects caused by unemployment, including; the fall in disposable income, fall in aggregate demand, social tensions, and rise in public expenditure. The disadvantages of unemployment are; the total of national output is likely to fall, a government may have to spend more on welfare payments to support the unemployed and their families. Which government may have to raise taxes on businesses and working people.
The third objective is high and sustainable economic growth. Which they rise in national output or income. There are some advantages of economic growth; increase in national income or national output, rise in per capital income (total income per total population), rise in disposable income and fall in tax collection. The disadvantages of economic growth is that if the output falls over time, an economy will suffer because employment, incomes and living standards will fall. Second, gogvernment tax revenues will fall and government spending will have to be cut, the revenues and profits of firms and businesses will fall and entrepreneurs will not invest in new firms.
ReplyDeleteThe last most important objectives that government must achieve is a stable balance of international trade and payments. International trade is the trade with rest of the world export and import. The advantages of international trade is it may create jobs and incomes in an economy which may help to reduce unemployment and poverty of a worker. And the disadvantages of an international trade is; it may run out of foreign currency to buy imports. As the process of imports and exports includes tax, the value of its currency may fall againts other foreign currencies and make imports more expensive t buy which can cause and imported inflation in a country. and if taxes affects international trade, it will make rich people to buy less.
In conclusion, these important objectives can be achieved by government using the methods of the policy instruments. And the most important objective that government must achieve is unemployment. Because if unemployment keep on rising everyday, it will increase poverty that may destroy the country and the country can be failed to be a success country such as Zimbabwe and Afghanistan country.
References :
- Economics lecture
- Complete Economics for Cambridge IGCSE & O Level pg.281
- http://voices.yahoo.com/economic-theory-advantages-disadvantages-unemployment-4045389.html
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Celia Pricilla 8A
A government wants the best for their economy, except for corrupt officials. Governments generally have 4 main basic macroeconomic objectives, including low and stable inflation, high and stable employment, high and sustainable economic growth, and a stable balance of international trade and payments. Macroeconomics is a part of economics that studies and deals with an economy as a whole, instead of from the perspectives and decisions of individuals and firms. Macroeconomists generally study economy-wide phenomena including, but not limited to, employment, national income, rate of growth, gross domestic product, inflation, changes in price levels, and international trade and payments.
ReplyDeleteIn order to try to achieve these 4 basic objectives, the government may most effectively act as the regulator in an economy. The government may impose taxes, fees, or penalties to both individuals and firms in order to ultimately achieve one or more of the 4 objectives. Basically, there are 2 types of government policies: fiscal and monetary. Fiscal policy is the use of public revenue collection and expenditure to control and regulate the economy, and may have significant impacts on aggregate demand and supply, distribution of income, and the pattern of resource allocation within the government and relative to the private sector. Examples of public revenue used in fiscal policies are taxes, fees/licenses, penalties, profits of Public Sector Enterprises (PSEs), and disinvestments. Disinvestment is the action undertaken by a government (as well as organizations) that involves the sale or liquidation of assets and subsidiaries, also known as “Divestiture”. Disinvestment may also be recognised as a reduction in capital expenditure, or the decision of a firm to not replenish capital goods that are depleted. Examples of public expenditure used in fiscal policies are the public purchase of goods and services, expenses of PSEs, infrastructure expenditures, capital investments, and expenses on internal and external security measures. On the other hand, monetary policies are In order to achieve these objectives, fiscal and monetary policies are meticulously imposed, but different goals require different policies. Monetary policies involve changes in interest rates, bank rate, Cash Reserve Ratio (CRR), and Statuary Liquidity Ratio (SCR). In order to have a low and stable inflation, the government may undertake contractionary monetary policy, which is a form of monetary policy in which decreases the supply of money and increases interest rates to tackle inflationary problems of a business-cycle expansion. Employment can be kept high and stable by imposing effective policies to reduce the total level of employment, but they need to encourage employability in the labour supply, improvements on the incentives of people to search and accept paid work, etc. Monetary policies such as tax reforms and employment subsidies also help.
In contrast, these monetary and fiscal policies may bring negative impacts on other objectives. Achieving more than one objective at once is very difficult for the government, and achieving all the objectives in the same period of time is practically impossible. Policies undertaken to solve inflation, for example, may worsen the economic growth and employment. A healthy economic growth can grow too fast, especially if it’s due to excessive consumer spending, which will encourage firms to produce more goods and services, therefore more production and growth. Such as in the UK, this aggregate demand will someday outstrip aggregate supply, in which as the case in the UK, will cause a rise in price and hence more inflation. Similarly, in order to keep inflation low and stable, interest rates are reduced, but this can often restrict growth due to a reduction in consumer spending and investment, therefore it is very difficult to achieve both objectives at the same time. In another case, healthy economic growth is also conflicting against balance of international trade and payments. When an economy is quickly growing, consumer expenditures are often high. Again in the case of UK, British citizens prefer imported and foreign goods instead of their locally produced goods, therefore an increase in consumer expenditure means an increase in demand for imported goods, and hence imports will rise while exports would not significantly change as much. This rise in imports causes an imbalance in international trade, hence only one of these two objectives are likely to be achieved at a given time. Employment and inflation are also conflicting as they both (in theory) have an inverse relationship. If the government tries to increase employment through reflationary measures, such as lower interest rates and increased public spending, it will increase employment, wages, and ultimately prices of goods and services, and hence more inflation. Similarly, a healthy growth of an economy brings negative impacts on the environment and equality, but these 2 objectives are not included in the 4 main government objectives, whereas they are included in secondary objectives of the government.
ReplyDeleteTo conclude what we have discussed, the government will have many difficulties in achieving all 4 main objectives at the same time mainly due to the fact that some objectives have an inverse relationship with the other or because the policy measures undertaken by the government to solve one problem may bring the opposite effect to another.
Ivan Alexander 8A
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References:
http://www.tutor2u.net/economics/content/topics/macroeconomy/government_policy.htm
http://www.investopedia.com/terms/m/macroeconomics.asp
http://www.investopedia.com/terms/d/disinvestment.asp
Notebook
Complete Economics for IGCSE & O Level Second Edition
http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=contractionary+monetary+policy
http://www.federalreserve.gov/faqs/money_12856.htm
Economics are divided into two divisions. There are macroeconomics and microeconomics. Macroeconomics is the study of how a national economy works. It involves in interaction between changes of total demand and total output and national income and employment and price inflation. While in the other hand, microeconomics is study of analyzing market behaviors of individual consumer and producer and how market works. They are actually quite related to each other’s but also are different. Government has many objectives. But we are going to discuss four main, basic objectives. The objectives are low and stable price inflation, high and stable employment, economic growth in national output, and stable balance in international trade.
ReplyDeleteTo achieve all the objectives, government have two types of policy instrument, they are fiscal policies and monetary policies. Fiscal policies control public revenue, which control taxes, fee, poverty, profit and disinvestment. Then fiscal policies also control public expenditure and public debt. Others tools are monetary policies. It controls interest rate, bank rate, CRR, and SCR. Why government needs to do this, because for example there are people with a high blood pressure, to help the patient, the doctor will give medicine for reducing the high blood pressure. And also the other way around. So, the patient is like the condition of economics in a country, the doctor is the government and the medicine is the policies instrument that I mention before. So, in order to reduce problems such as inflation, government need to use a policies instrument to make the condition of economy in a country become stable. The way is by using the instrument.
Government need to reduce the inflation in a country. Before that, inflation is continuous rise of level price. Inflation has much bad effect for a economy in a country: reduce purchasing power of people’s income example, today’s price for wafer is Rp 2000, but then due to inflation, the price for one wafer is Rp 4000. People can buy two wafers if there is no inflation, instead they can only buy one wafer for Rp 4000 because of inflation. It causes people with low income a hard time buying stuff they wants or needs. It increase business cost, if employee demand more higher wages to support their living. Inflation can makes goods and services to be bought in a high price. To prevent the bad effect of inflation, government needed to use some tools to achieve these objectives. The government need to raise the interest rate and taxes to make it stable.
The second objectives high and stable employment. Employment happen when a person wanted to find a job but there is a lack job fields or opportunity. The following happen because of the total national output is likely to fall, then it may be caused by more government spending on welfare payments to support the unemployed and their family. If people remain unemployed for a long time they may lose the skill they need to work in new industrial sector. To achieve this objective government need to use fiscall policies which are taxes on business and working people, by doing this government will reduce their disposable income and spending on goods and services
The third objectives are economic growth in national output. Economic growth will boost output and incomes. An economy growth fall then economy will suffer because employment, income and living standard will fall, government tax revenue will fall and government spending will have to be cut, the revenue and profits of firms will fall, and the entrepreneur will not invest in new firms. The government need to maintain economy growth to rise constantly year by year. Government need to make economy condition that support economic growth by choosing good interest rate, bank rate and taxes fare. All that rate and fare need to be maintained, don’t make it too low because it will cause inflation and don’t make it too high because it makes unemployment for people.
ReplyDeleteLast but not least, the objectives are to make a stable balance of international trade. Every country needs to practice trade with another country. Investment by oversees firm and the sale of export help to create new job and income in an economy. Most countries need to make their inflow and outflows of income from international transaction always balance. But if a country buy something from other another country by debt, the country need to maintain their balance payment. If a country has deficit of its balance payment, this following things will happen: it may run out of foreign currency to buy imports, the value of its currency may fall against other foreign currency and make import more expensive to buy. Usually government use tax policies to achieve these objectives.
We can concluded that fiscal policies and monetary policies are effectives tools to achieve the four main basic government objectives. If government can apply suitable policies for very condition of economic, a country will be build well. But the fact is, government in every country still hard to find the most suitable policies for their economic conditions and until now they still trying to find out which tool is the best.
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Reference :
Economic notebook
Economic book
Government plays an important role in economics. The government is use to solve many problems In a country. there a 6 problems in this country but there are only 4 most important problem in our country that need to be solved by the government. The problems in our country are inflation, unemployment, economic growth, position of international trade, inequality and sustainable economic development. To solve all of these problems, there are 2 policies that the government can use. The policies are Fiscal policies and monetary policies. Fiscal policies is the use of government revenue collection and expenditure to influence the economy. Monetary policies is dealing with money. The types of fiscal policies are public revenue (taxes, fees, penalty, profits, disinvestments). The examples of monetary policies are interest rates, bank rate, CRR, and SLR. Both of the policy measures are demand side policy. There are some problem that can be cause if government fail to reach the objective.
ReplyDeleteTo solve the 4 major problem government usually act as a regulator because government make the rules and regulation about the economics. For example taxes and import. The first objective is inflation. The government is trying to make low and stable Inflation. The problems that cause by inflations are decrease in disposable income, increase in poverty, decrease in value of money and decrease in standards of living. The government increase the taxes. When there are high taxes there are less consumer want to buy the product because in Indonesia the tax rate in 10%. There will be low inflation because there are less demand because no people wants to buy the product. The tax also can be use to upgrade the public transportation and it can reduce poverty so the inflation won’t rise much.
The second problem is unemployment. The government objective is to make low and stable unemployment. The government use the public expenditure fiscal policies to increase taxes. The government can increase the public goods and service. After the government use the taxes the government got from the people for increase public goods and service, they need some workers so the government employ the unemployed worker to work with the government. the government use the monetary policies to reduce interest rate. This strategies will attract people to open new business. When open a new business they need workers to work in the business. So they will employ the people and work in the business. The government can decrease the corporates taxes. If the corporate taxes decrease, many MNCs build a new office or factory In the country and they need to employ local people to work there so they employ many local unemployed worker to work in the company. It can help to reduce unemployment and increase economics growth as well.
The third objective is economic growth. Economic growth will boost output and incomes and it can help to raise living standards. The government reduce the unemployment and inflation because t can helps to increase an economic growth of a country. the government can also decrease the taxes. If the tax Is high the productivity will low and low demand. So the government decrease the tax to make the people active to produce the goods.
ReplyDeleteThe fourth objective is stable balance of international trades and payments. Every country do exports and imports to another country. if the country doesn’t do exports and imports the economics growth will decrease. To make it balance the government make the MNCs build the new office or factory in that country by decrease the corporate taxes.
My conclusion is that the policy instruments ( fiscal and monetary ) is a good tools to helps government to solve the problem in our country. the government can use one of the policy to help the government solve the problem. The government must use different policy in every different problem. For example if the patient got a heart attack the doctor will not kill the patient but help the patient to stop the heart attack.
Reference
http://en.wikipedia.org/wiki/Fiscal_policy
colour notebook
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There are many objectives that the government wants to achieve. But the top objectives are only four, which are low and stable inflation, high and stable employment, sustainable economic growth, and position in international trade. There are policies to help the government achieve those objectives, which are fiscal policies and monetary policies. Fiscal policy is the use of government revenue collection and expenditure to influence the economy, or else it involves the government changing the levels of taxation and government spending in order to influence aggregate demand and the level of economic activity. Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. Fiscal policy is control by the government, which are like public revenue, public expenditure, and public debt. On the other hand, monetary policy is control by the central bank, which is like interest rates, bank rates, CRR, and SLR.
ReplyDeleteThe first objective the government wants to achieve is a low and stable inflation. In economics, inflation is an increase in the price level of goods and services in an economy over a period of time, in which it can create problems like more poverty and a decrease in disposable income. To achieve this, government can increase taxes so that people need to pay more and have lesser money to buy goods and services they want. By this, inflation will be low and stable and government will be satisfied. To achieve a low and stable inflation government can also use contractionary fiscal policy to reduce the prices by cutting the aggregate demand by through are reduce in public expenditure. Monetary policy can also help by increasing the interest rate. When the interest rate increases, people will make their spending lesser and inflation will be lower. So those are the things the government needs to do to achieve its first objective, a low and stable inflation.
The second objective is a high and stable employment. To achieve this, government should act as an employer. Government as an employer will employ workers, which will reduce unemployment. Unemployment means people who have no work at all, which can create poverty, dependence on others, and more problems. Increase in a tax will increase the public goods and services which will need workers to work on them. For example, building a road need workers. To achieve the second objective, which is to achieve a high and stable employment, the government can use the monetary policy to reduce interest rate which will make many people wanting to start a new business, which then employs people and by this, unemployment will be high and stable.
The third objective is a high and sustainable economic growth. A sustainable economic growth will make the country develop. A high and sustainable economic growth can make a higher national income which is the increase in the total output (the GDP). A higher and cooler technology and machines might be needed to produce a good output. Infrastructure on streets and other building can also increase the growth of the economy. And government should increase the quality and facilities in public schools and other public areas such as toilet, hospital, clinic, and more. Unemployment should also decrease so that there are not that many poor people sleeping on highways or under the bridge. So, those are the things the government needs to do to achieve its third objective, a high and sustainable economic growth.
ReplyDeleteThe fourth objective is the position in international trade. This involves the export and import of a country. For example sushi is imported from Japan and batik is exported from Indonesia. Government should make the imports greater than the export. If a country doesn’t have a balance trading with other countries, the value of its currency may fall against other currency and make import expensive to consume. So those are the things that the government need to do in other to achieve its fourth objective, to make a good and stable international trade and maintain the position of international trade in the country.
In conclusion, the policies, which are fiscal policies and monetary policies can help the government to achieve its objectives and be the government people want. Many government failed to do this but a hardworking government will succeed in doing this, to achieve the four main objectives which are a low and stable inflation, a high and stable employment, a high but sustainable economic growth, and a good position of international trade.
References:
1. http://en.wikipedia.org/wiki/Fiscal_policy
2. http://en.wikipedia.org/wiki/Monetary_policy
3. http://en.wikipedia.org/wiki/Inflation
Originality: 90% unique content
Audrey Tan, 8A
Government firstly means a group of people that governs a community or unit. Their job is to set and administer public policy and also exercise executive.Aside from their job, government have four main objectives, which are: low and stable inflation, high and stable employment, high and sustainable economic growth and lastly to stabilize the international trade such as, for example: export and import of goods.To achieve the objectives, there are policy instruments: fiscal policy and monetary policy.Fiscal policy is always controlled by government while monetary policy is controlled by central bank, it deals with the supply of money.Fiscal policy measures the public revenue, which they earn the revenue from disinventment, taxes that include direct and indirect tax, the example of direct tax are: federal taxes and property tax while indirect tax is food tax. Also fees or license such as passport and birth certificate.It also measures public expenditure like infrastructure or building, capital investment, internal and external security and last measures public debt or borrowing.In other side, monetary policy includes interest rate, bank rate or rate at which commercial bank borrowed from other, CRR and SCR. CRR is minimum cash reserves or needed in a bank and SCR is amount of money maintained by central bank.
ReplyDeleteFirst objective, the low and stable inflation is important because high inflation will lead to fall in purchasing power, decrease in the value of money, interest rises and reduces the value of an investment.Inflation condition where the price level is high in a specific period.Government can control it by using fiscal policy to increase the tax, lowering the disposable income of an individual.While monetary policy can help to decrease and cut the aggregrate demand, it is the total level of demand for desired goods and services within the national economy that makes up the GDP or gross domestic product.When there is a decrease in aggregrate demand, it leads to an increase in investment and jobs so unemployment is reduced.
Second, it is high and stable employment. If there is low employment in a country, it will effect the country to become more poverty, unemployment, inequality, low disposable income, decrease in CAD tensions and social tensions and public tensions.Unemployment is a situation where people are not working. As a result, rate of crime rises.To stabilize employment rate, government can act as an employer, means they can provide public jobs to unemployed people, for example: constructing public transportation , buildings , road which requires worker.Also, government and other firms can reduce the use of capital or machines and recruit more number of workers or becoming a labour intensive firms.Lastly, government can provide higher level of education to the people so that they are able to work and increase the productivity of a firm.
Third objective is a high and sustainable economic growth.Economic growth means increase in a country’s productive capacity, as measured by comparing GNP or gross national product in a year and previous year, the growth of economic will indicate the development of the country, thus, if the economic growth is high, the country is more developed such as: America and Japan.To achieve it, tax collection should be minimize, also along with disposable income and PCI or per capital income.Corporate tax need to be reduced so that productivity of goods and services can increase which causes the increase of total output too and the firm can earn more profits.
ReplyDeleteLast objective is stabilize international trade like BoP or balance of payment.It involves the trade between the rest of the world in export and import of goods.Conditions of international trade are divided into two types, first condition is export is greater than import in a country which is good because the revenue of government will be higher compare to the expense while second condition is import greater than export which is bad because the government cannot make use of the resources from the country.The example of export from Indonesia is oil and import is rice.To control the stabilization of economic growth, government is able to increase the tax on rich people especially so that lesser people will buy imported goods and encourage the use of natural resources in that country and manufacture to create useful goods.
In conclusion from above, the four main business objectives which are low and stable inflation, high and stable employment, high and sustainable economic growth and lastly stabilize the international trade, can be achieved successfully by the help of fiscal and monetary policies that are controlled under the government and central bank authorities.
References:
1. Economics lecture notebook
2. http://www.businessdictionary.com/definition/aggregate-demand.html
3. http://www.businessdictionary.com/definition/economic-growth.html
4. http://answers.yahoo.com/question/index?qid=20071229220319AA9nNOt
5. http://www.businessdictionary.com/definition/government.html
Felicia Angeline 8A
Originality:
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There are 4 main objectives for the government, which are inflation, unemployment, BOP or international trade, and economic growth. Which the government tends to have the objective of having low and stable inflation, high and stable employment, economic growth and increased standard living and a stable balance of international trade and payments. Inflation is the increase the average level of prices and it is where the decrease value of money. By having high inflation it reduced the purchasing power of people's income, it would be a disadvantage for low income people and it makes goods and services more expensive to buy in the country rather than buying from lower inflation country. The example is that prices of iPhone 5s are much cheaper in Singapore compare to Indonesia, as Indonesia have higher inflation rate than Singapore. And high and stable employment as if unemployment rises the total national output would likely to fall. The economic growth in national output will boost output and incomes. Where if output falls employment and incomes is likely to fall and government tax revenues will fall and government spending will have to be cut. By international trade and payments it means it is exports and imports of the country with other countries.
ReplyDeleteGovernment uses policy instruments where to control or to influence aggregate demand and supply in their economies. Demand side policies would influence the aggregate demand in the economy using these 3 different policy instruments which are, total public expenditure, overall level of taxation and the rate of interest. Government could make low and stable inflation by increasing the tax where disposable income would decrease. And they could rise the interest rate where it might increase consumers to save more or borrow less to spend consuming goods and services. As borrowing decreases inflation would be lower and more stable. In demand side policies, there are 2 types of policies which are fiscal and monetary policies. Fiscal policies is the varying overall level of public expenditure and taxation in an economy to manage the aggregate demand. If the government want to boost employment they could increase and aggregate demand which this is called expansionary fiscal policy or reflationary. An expansionary fiscal policy means of increasing the budget deficit. The budget means of the government spending per year relative to the amount of revenue owned by taxation. Contractionary fiscal policy tends to reduce or cut the aggregate demand by increasing tax or decreasing public expenditure, which would result to a decrease of disposable income. Which by having lower disposable income, inflation rate could possibly be controlled and lowered. Monetary policy is where the varying change of the money supply and interest rate which is to influence the aggregate demand an
d the economic activity. Interest rate is the main instrument of monetary policy which is charged by the central bank, which changes of interest rates would affect businesses and individuals or personal consumers to borrow money. Expansionary monetary policy is where they would try to increase or to boost the aggregate demand by cutting the interest rate. This is usually measures by the rise of unemployment and when the economic growth of the national income is decreasing or declining. Increasing the money supply would make more people to can buy goods and services and consume it. Where they do more printing notes or increasing the money supply is called quantitative easing. Contractionary monetary policy is where the interest rates are increased where to reduce aggregate demand. By this, it makes less borrowings and less supply of money. Which having less supply of money means that they are stabilizing the inflation rates, which be less printing notes, money value might increase or stay stable and low.
By using fiscal policy it might cause the general level of prices will rise which if the aggregate demand would rise faster than the aggregate supply of goods and services, this is also called "overheating". There might be crowding out which it means that the private sectot might lend too much that less it culd spend for itself, as by increasing the public spending or expenditure and a cut in taxation which the gvernment may need to borrow extra money from the private sectors. By increasing tax, people and firms may reduce their work effort which would cause to a decline of labour productivity,total outlut and profits. And as productivity falls, competition would also tends to fall or they are unable to compete with firms, as product price would increase high as tax are high. And as in expansionary policy where if they increase the money supply or increase the printing of notes, value of money would decrease, which also means that it would increase inflation. And ad in contractionary monetary policy, dalling aggregate demand may cause of an increase of unemployment and if the firms cuts their investment, it would affect thr future economic growth.
ReplyDeleteSo, government could give policies as like increasing tax to control to make the inflation low and stable, as by increasing tax it would lead to a decrease in disposable income. And they could decrease the interest rate where to have an increase of borrowing for public expenditure to increase. Which because of decreasing the inflation it could also be decreased as consumption or public expenditure or aggregate demand could be increased by policies given by the government.
Reference: Economic Book
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Brian.A
8A
Government has four major objectives in an economy. Government aims for low and stable inflation, high and stable employment, high and sustainable economic growth, and an equilibrium in balance in payments. This means that a country’s exports income must be at least equal to its imports expenses. Government will apply fiscal and monetary policies to achieve these objectives. Fiscal policy relates with government expenditure, income and borrowing/debt, while monetary policy is done by the central bank, which deals with interest rates.
ReplyDeleteInflation is a fall in the value of a currency and the increase in prices. This is a phenomenon happening because the supply of money in the country is greater than is justified by the country’s wealth. When inflation happens, prices rise. Therefore the purchasing power of people falls. People will not be able to buy the same amount of goods and services with the same price. Government can use fiscal policy to increase taxes, such as income taxes and VAT, to reduce the supply of money and the real disposable income of people. When this does not work, the government might need to make the economy smaller by reducing GDP. The expenditure approach states that GDP (Y) is found by the sum of consumption (C), investment (I), government spending (G), and net exports (X-M). Government will try to reduce household consumption and government spending. Taking a monetary approach, government can increase interest rates through central/ national bank. Therefore, the cost of borrowing would increase and reduce investment spending. Higher interest rates may also cause the exchange rate to appreciate in value – therefore the value of the currency of a country will be higher relative to other countries – bringing about a fall in prices of imported goods and a reduction in demand for exports, which are both components of GDP. Increased interest rates would cause higher rate of savings, so less money will be circulating in the economy.
However, reducing GDP is at the cost of the economic growth of the country. An increase in taxes causing a fall in consumer spending will be a loss to businesses, as a fall in aggregate demand would mean that they would be forced to produce less output and earn less revenue. This means less jobs and increased unemployment, once firms are forced to reduce costs to survive. It would also be very difficult for new businesses to start up as it is getting more expensive to borrow money to invest in a new business. This, again, would cause in a decrease in job opportunity for people. Inflation, at a certain extent, do not need to be intervened. Government might even be the cause to inflation. As an example, the US government used inflation to fight The Great Depression. Inflation gives an altogether ‘feel-good’ feeling to the society. It may help reduce unemployment and increase consumer spending. For example, if customers know that the electronic gadgets they are saving up for would face a price increase the year after, they would rush to buy them. So, businesses can produce more output and will provide more job opportunities. Citizens will also feel happier and wealthier if they receive paychecks with larger amount, though they are not actually getting any richer in real terms. This is why the government aims inflation to be around 2-3% per year instead of 0%. At certain circumstances, it may rise to 5% per year.
Unemployment is bad in any economy. Unemployment causes poverty and crime levels to increase. Unemployment reduces the satisfaction of people in the economy. Therefore, government intervention is vital in reducing unemployment. Firstly, government can increase job opportunities in publicly owned companies, such as electricity company (PLN in Indonesia) and water company. Work in PLCs are safer because workers have job security – they cannot be fired at will, unlike in private companies. Government can also provide training to less educated individuals with certain skills, such as sewing or maintenance. Government policies to help reduce unemployment differ between each type of unemployment. Frictional unemployment is the situation when a person is jobless because they are transitioning for a job to another. This may happen because the labor market is not perfect. There may be mismatches between the job seeker and the job. If this happens for too long, the economy will suffer. Government will provide clear and unbiased information and advice for those unemployed, and conduct job fairs and counseling sessions. Government may also provide facilities to allow flexibility and convenience, such as public transport. In Jakarta, the Indonesian government provides the bus service Transjakarta, which is fast and cheap. The government can also fund campaigns against prejudice of certain types of workers, jobs or location. Structural unemployment is a mismatch between the number of people seeking work and the number of jobs available. This may be caused by the lack of skill of the worker, or that the worker does not live where jobs are readily available. Policies government use in this case usually deals with training. For example, a worker with an obsolete skill, such as a typesetter, lost his job after typing and printing is mechanized. He can be retrained by the government in a field with a strong demand for labour so he can earn a new job.
ReplyDeleteHowever, providing facilities and training would come at a very high cost to the government. Government expenditure will rise drastically. If government is not able to cover up these costs with its income, government failure would be a result. The people the government employ in their companies might not be experienced or skillful enough. This will cause inefficiencies to happen in companies which are very important for people. Frictional unemployment also does not need to be eliminated altogether. In fact, some frictional unemployment is good. If all workers earn the first work they encounter, the distribution of workers and jobs will be inefficient. Therefore, some governments prefer to provide unemployment insurance to assist the short-term difficulties a job seeker may face, and to give more time for him/her to search for a job.
Every country’s government wants to stimulate economic growth. Economic growth raises the country’s standards of living, the people’s wealth, and alleviates poverty. Politically, government wants a higher economic growth as for the people to vote for them again and win to maintain their position, as the chance of winning depends on the state of the economy. In the long-term, the country will also be more developed.
A form of increasing economic growth would be to encourage small businesses to develop new products and grow in size by giving them financial assistance. Government will also allow grants to large companies for research and development. Government can also lower multinational tax to attract multinational companies to invest in the country and therefore increase the income of people in the country by increased employment and the government by increased taxes. Once a multinational allocates its operations in the country successfully, more multinationals would come and further increase the country’s wealth. Economic growth will be boosted if the amount of exports is greater than imports. This means that the country’s income is greater than its expenses in international trade. Most developed countries have larger exports than imports, such as Germany, U.K., and U.S.A. Economic growth generally increases the purchasing power of people and their power to invest in various resources, such as property.
ReplyDeleteHowever, fast economic growth may cause problems, such as inflationary conditions. A sudden increase in demand will increase prices. This happens as producers increase the supply of the goods. When there is a shortage in supply, they will raise the prices. As developing economies become more developed, they will demand more consumer goods such as food, which will push global prices. If economic growth is too fast, there is a good chance that it may be artificial. Unemployment would still be a big problem, like in China, where economic growth reaches 8%, but many workers had been employed in inefficient industries which employ too many people and fire unneeded employees. Countries with slower economic growth can increase its workforce slowly by increasing productivity, which will be more efficient. As countries grow rapidly, they will require more power. Countries must build more energy generating industries and purchase more energy resources. When economic growth is too fast, government might not be able to keep up with the demand. Fast economic growth will provide banks and other financial institutions incentives to give easier credit. It also encourages central bank to loosen policies by reducing interest rates. Loose banking policies may cause in overbuilding of infrastructure and housing, and overinvestment, which may cause the burst of the housing bubble, such that happened in 2007 in the US which led to a major worldwide recession.
As a conclusion, governments of developed countries are able to apply fiscal and monetary policy to lower inflation, raise employment, increase economic growth and balance international trade.
1. http://en.wikipedia.org/wiki/Gross_domestic_product
2. https://www.boundless.com/economics/unemployment/understanding-unemployment/impact-of-public-policy-on-unemployment/
3. http://www.ehow.com/info_8166938_problems-caused-fast-economic-growth.html
Originality 98%
In general, the government has 4 main objectives, they want to maintain a low and stable inflation rate, they want to increase the amount of employees in the country, they want the country to have a high and sustainable economic growth, and they want to have a balanced position at the international trade.Inflation is the general and sustainable rise in price level of goods in a specific period,this could be a dangerous threat to the economy, the government want to keep the inflation rate as low as possible so poor people won't be even poorer and rich people can't benefit from inflation.They also want to reduce unemployment in the country to reduce poverty and that could lead to the increase in the aggregate demand because most people have confidence to buy when they are not jobless.In order to achieve those objectives, the government created 2 policies to help them.The fiscal policy and monetary policy.Fiscal policy are the policies undertaken by the government in form of public revenues, public expenditure, and public debt/borrowings.Monetary policy are policy majors that deals with money supply, it's controlled by the central bank.
ReplyDeletePublic revenues includes direct taxes and indirect taxes, these kinds of taxes could help reduce the inflation rate.By increasing direct tax, there would be a decrease in worker's disposable income, leading to less power and confidence to buy goods and services, therefore decreasing the aggregate demand, which could help control the inflation rate.Taxes could also help reduce unemployment, if the government decides to reduce an employee's tax that is paid by their employers, employers would surely employ more employees.Taxes could also help maintain a high and sustainable economic growth, it could help increase the aggregate supply of a country.If the government decreases the production tax,the employers would produce more leading to an increase in national output.Also,by decreasing the direct tax, people would have more disposable income and they would be more confident to buy goods and services, therefore increasing the aggregate demand of a country and could potentially lead to the increase in output because there's more demand.Some governments also gave more taxes to the rich people and use that money to invest on things and to buy public services that could help the people that is experiencing poverty.
However, these policies can "back stab" the government.By increasing taxes it could help reduce inflation but also it could increase unemployment because the tax for each employee increases and to cut costs companies would employ less.If the government decides to increase tax for rich people, it could lead to some social problems too.Because the rich certainly won't be happy about this.Also, if the government fails, the country will be facing a big problem.If the country is currently in prosperity but they keep forcing the country to grow even further, it could cause some problems.And if the country is currently facing a recession,if the government fails,the country would go banana.So sometimes its dangerous to use these policies, they must be handled with care and should be used correctly.
So the conclusion is that policies that concerns taxes could help the government achieve their objectives.But some more problems would occur if they didn't handle/use the policy properly.
Jovan Pan 8A
Originality:97%
Reference:Economic Notebook
As we know, there are four important objectives of a government. First, low and stable inflation. Second, high and stable employment. Third, higher economic growth. And lastly, stabilize international trade.
ReplyDeleteThe first objective is talking about inflation. Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. Nowadays, most people favor low and stable rate of inflation. Low, zero, or even negative inflation can decrease hardness of economic recessions by enabling market of labor to adapt faster in tendency of declining, and decrease risk that liquidity trap avoid monetary policy from economy’s stabilization. Monetary authorities usually get the task to keep the rate of inflation low and steady where these monetary authorities are central bank that control through setting of interest rates, open market operations and banking reserve’s requirements (setting).
The second objective is talking about unemployment. Unemployment is where people that have no work and actively finding work. Without job and source of income, we have lesser money to spend on goods and services we need. They also have lesser money to pay tax, which must receive benefits of government to make ends meet. And it is also problem to employment, government get lower taxes that can affect the tax of employment people that will become higher. But unemployment can help to reduce wages amount that employer has to pay to his/her employee(s). High unemployment creates surplus of labors.
The third objective is talking about economic growth. Economic growth is the increase in the market value of the goods and services produced by an economy over time.
The fourth objective is talking about international trade. It is the trade with the rest of the world. There are two conditions of international trade. It’s good if export is more than import because it brings money to the country itself. It can increase the Gross Domestic Product of a country. If import is more than export, it is bad because we buy goods from other country that will benefit for other country, and can decrease the amount of GDP of a country.
So on conclusion, it’s hard to make all the objective come true because of some reasons.
originality 89% based on smallseotools.com
resources:
economic lecture notebook
http://en.wikipedia.org/wiki/Inflation
http://en.wikipedia.org/wiki/Unemployment
http://en.wikipedia.org/wiki/Economic_growth
http://www.infoplease.com/cig/economics/imports-exports.html
By : Jennifer
ReplyDeleteMost governments have 4 main economic objectives : low and stable inflation, high and stable employment, economic growth, and balance in international trade. To achieve these objectives, Government uses policy instruments. It is divided to demand-side and supply side.
Demand-side policies influence aggregate demand. They are, total public expenditure, taxation, and interest rate.
It’s effective because :
The amount consumers can spend depends on net income after tax deduction
Tax on profits affect the amount of money firms invest in productive capacity and demand for labour
Increased public expenditure increases demand, output and employment
Rising interest rates encourage overseas investments
To boost employment and output, government use expansionary fiscal policy. Cutting tax on income encourages people to work. Cutting taxes on profits encourage firms to invest and increase output.
Supply-side policies influence aggregate supply. It includes, research and development subsidies, changes to personal taxes, and new regulations.
It is used to :
Increase supply to satisfy demand
Raise economic growth
Reduce barriers on increased employment
Higher productivity in markets
The government can use the policies to increase output by giving subsidy to certain products, education, and research and development. They also remove barriers of entry for firms and increase competition to prevent monopolies.
However, sometimes policy instruments are not effective and cause problems. Expansonary policy boosts income, but people may save it to buy imports. Contractionary fiscal policy may reduce employment and output.
The problems with fiscal policy :
Cumbersome and hard to know when to use
Increased spending increases borrowing
Increased taxes reduce incentives to work and enterprise
Government policies are usually effective in regulating the economy, but at some point it will cause problems. So, the right policies have to be used at the right time.