Grade 8C 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
Note:
Marks allocation for this article is 20.
Rubrics for Marks.
A. Theoretical Explanation 5 Marks
B. References. 5 Marks [Use Harvard referencing style]
C. Use of Key words. 5 Marks
D. Evidences in the support of explanations 5 Marks
This comment has been removed by the author.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteThe four objectives in the government policy consist of: Full employment, low inflation, high sustainable economic growth, and maintain healthy balance of payment. In order to achieve those goals the Government has 2 tools to:
ReplyDeletea.Fiscal policy:
Adjusting the economic through the Government spending and taxes.
Example: The government try to stimulate the aggregate demand of economy by lowering taxes and increase spending
b. Monetary policy
Controlling the economy by controlling money supply through buying and selling financial securities that aim to change the interest rate.
The effectiveness of the government policy on:
1. Full employment or low employment
This is refer to the economy at the Natural Rate of Unemployment. Natural rate of unemployment is the rate where there is no cyclical unemployment. There will always be frictional, structural, seasonal and hard core unemployment
When we have full employment we can maximize the economy capacity to produce, leading to increasing standard of living. Full employment also reduce social problem like crime rate.
The best way to reach low employment is to create jobs . Jobs can be created if the economic is growing meaning we need the GDP to growth. GDP could grow by increase government spending like creating infrastructure program or stimulate Investment through tax incentive scheme on the labor intensive sector.
Government could also increase the money supply by buying securities from bank. This will increase the price of securities and lower the interest rate. The low interest rate will encourage credit and encourage investment which will create jobs.
This is the common tool that is used by government during recession.
However, too much money supply will create hyperinflation.
2. Price stability or low inflation rate
Inflation is defined as sustained rise in the general level of prices. Usually we use the annualized percentage change in CPI (consumer Price Index). High inflation rate will reduce purchasing power. While negative inflation rate (deflation) will kill the demand and will slow down the
economic’s growth.
When the economic overheated or money supply is too much, the inflation rate usually increasing. The government usually raised the interest rate to slow down the economy and the inflation rate.
ReplyDelete3. High sustainable Economic Growth
This is measure by the annual change in our real GDP.GDP is the market value of all officially recognized final goods and services produced within a country in a year.
GDP= Consumption+ Investment+ Government spending+ (Export - Import)
High GDP growth meaning increasing prosperity for the country and usually also mean lower unemployment, and higher opportunity for increase Investment
To have economy growth the government could increase spending like creating infrastructure projects. Encourage investment through giving tax holiday, and encourage consumption by giving access to cheap credits. For example access to cheap mortgage rate.
4. Maintain healthy Balance of Payment
Balance of Payment (BOP) is divided into 2 accounts: Current Account and Capital Account. The most important will be the current account because that measure how well is our trading position toward other countries. If we are continuously suffer from CA deficit then we have competitive problem. We also need to increase borrowing to finance the trade deficit that will usually lead to increase in interest rate and slowed the economy growth.
Maintaining healthy BOP is the most difficult part. In order to have a healthy BOP we need to create surplus in our CA. That means we have to export more than what we import. So we need to be very competitive in producing goods, we need to create a value added products.
Indonesia is suffering from massive CA deficit, because of our reliance to oil import and electronics import.
Our oil production has declined over the years while our fuel consumption is continue to increase as there are more car on the street. We need government to come out with policy to stimulate oil and gas exploration and production like giving tax holiday or building more infrastructures that support oil and gas industry.
We also import a lot of electronic goods so it will be helpful to our CA if government could attract FDI in technology by giving tax break or providing free land etc.
We can also try to increase our export value by exporting value added product like exporting refined Olein instead of CPO or refined metal instead of the ore.
In conclusion, usually government policy is very effective to achieve those objectives. But sometimes due to the politic pressure the policy could failed. For instance, in order to boost the electability during election, the government lower the interest rate to chase economic growth. The abundant cheap funding has created reckless lending that caused collapsed of the banking system and recession.
Source:
ReplyDeletehttp://en.wikipedia.org/wiki/Economic_growth
http://en.wikipedia.org/wiki/Fiscal_policy
http://en.wikipedia.org/wiki/Monetary_policy
http://www.tutor2u.net/economics/content/topics/macroeconomy/government_policy.htm
http://www.infoplease.com/cig/economics/government-unique-situation.html
93% original
First of all, there are 4 government objectives. The first obective is low and stable inflation. The second objective is high and stable employment. While the third government objective is high and sustainable economic growth and th elast government objective is international trade and stable balance of payment.
ReplyDeleteWhile public policy is the principled guide to action taken by the administrative executive branches of the state with regard to a class of issues in a manner consistent with law and institutional customs. Also policy instruments are the methods that was undertaken by the government to do the obectives stated before. There are 2 types og government policies such as fiscal policiy and monetary policy. Fiscal policy are control by the central government which involve both direct tax that arepaid directly by individualfrom theirincome while indirect tax are paid indirectly by the idnividuals when they purchase goods or services includes restaurants, hotels, it also involves fees for the license paid by a company so the company will be legal, profit made by thepublic offices for example in Indonesia the Bank of Indonesia, and disinvestment, those are the public revenue of the government, while the public expenditure includes capital expendture for example the investment made by the government, machines required for the country, and the vehicles needed for the public transportation and current expenditure includes salary of government employees and fuel of the public transportations in that country. While public debt happen when public expenditure is more than public revenue which the debt can be taken domestic and internationally, domestic are debts that comes from the central government and individuals in the country while international are debts from the individuals outside of the country. And lastly, public borrowing are the way to borrow and how things are affected by borrowing money.
While monetary policy are control by the central bank in which it can control the interest rate, bank rate which means the rate at which the commercial bank borrowed, CRR are the cash available by central bank and lastly SLR are the cash revenue ratio.
Inflation may happen because demand are high while the supply are low and government objective is to have a low and stable inflation. The government polivy ay help by charging more taxes and give subsidies or an amount of money for the supplier so they want to produce more goods or services to reduce the inflation in that country. The otehr government objective is high and stable employment which also can be done by government policy by reduing the interest rate so many people will want to start and open their business in which in openning a business, many number of employees are required which may reduce the unemployment in that area also charging more tax and giving subsidies on education for the vulnurable people so vulnurable people also can go to school and can well educated so they also can work and reduce the number of unemployment in that country. High and stable employment also can be done by the government offices that needed employees.
ReplyDeleteAnd the third government objective is to have a high and sustaibale economic growth also can be done by having a small interest rate so that many people can want to start and open their new business and can decrease the number of unemployment and many people will get income which will increase the economic growth, also if the owner’s business run well and they can got many profit, the profit earned by the owner will also increase, also if the interest rate decrease, owners will borrow more and invest more on the prpduct they sell which willl increase the output produces. And lastly, the fourth government objective is international trade and stable balance of payment also can be done by reducing the bank rates so the owner of the company in another country will borrow money to the central bank in the country and also can by the public offices or individuals offices that exports their product will help to increase the balance of payment since balance of payment are affected by theexports and imports of the country.
In conclusion, government policies are effective to achieve the government objective since inflation can be reduces by reducethe demand and increase supply through monetary policy, high and stable employment also can be done by both fiscal and monetary policy, while low and sustainable economic growth can be done by monetary policy and fidcal policy and international and domestic trade and stable balance of paymane also can be done by fiscal and monetary policy.
Sources :
• Note book
• Text book
• http://en.wikipedia.org/wiki/Public_policy
originality : 100%
Government has four basic objectives which include low and stable inflation, high and stable employment, high and sustainable economic growth and international trade and balance of payment. Government applies certain policies in order to achieve these objectives. They are fiscal policy and monetary policy. It will be further discussed about the effectiveness of government policies.
ReplyDeleteThe first objective is low and stable inflation, this also means stable price. Inflation is a general or average rise in price level of goods and services. When inflation happens, prices of goods and services will increase and cause several problems such as the decreasing value of money which makes consumers buy less goods. Real income will decrease as well, poverty increases and there will be more poor people. This will also lead to standard of living becoming worse or decreases. Inflation is also caused by aggregate demand greater than aggregate supply which results in high prices of goods and services.
In order to prevent inflation from happening, government use contractionary fiscal policies to reduce aggregate demand. This is done by increasing tax on goods and services which will decrease disposable income and reduce demand. Reducing public expenditure will therefore discourage people to spend, thus reduce consumer expenditure. However, this would cause higher levels of unemployment. On the other hand, government may also use contractionary monetary policies to reduce aggregate demand. This is done by increasing interest rates, which will encourage people to save more of their money instead of spending them on goods and services. Printing of money is also reduced so that the real value of money will not fall and cause inflation. Increase CRR (Cash Reserve Ratio) which is the amount of money every bank has to keep. As well as increasing SLR (Statuary Liquidity Ratio) which is the cash owned by central bank for security.
The second objective is high and stable employment, or also said low level of unemployment. Unemployment is a situation in which worker is ready to work at existing wage rate but disability of job. The problems of unemployment are low income, low standard of living and low expenditure on goods which reduce demand. There are some reasons for unemployment, they include low consumption expenditure and low household consumption which reduce the demand for consumer goods, lower investment leads to lower capital creation and then no job creation as well. Technology improvement may also increase unemployment because less people are hired due to automated machines.
By lowering interest rates, it can help reduce unemployment and which means increase employment in a country. Interest rates is set low to stimulate aggregate demand and job growth, by lowering borrowing costs for consumers and firms. With low interest rates, consumers are more likely to borrow more and increasing spending now rather than wait to consumer later. Low interest rates also drop the cost of borrowing to invest in productive capital. The increased demand for consumption and investment then leads to higher demand for labor. Increased in investment will encourage the building of new factories and they will need for workers. This will therefore help to boost output and increase employment.
The third objective is high and sustainable economic growth, this means the development which can be maintained in a long-run. High economic growth will lead to higher national income which is the increase in total output or also known as GDP (Gross Domestic Product). There are several reasons for economic growth, they include resource utilization or the optimum utilization, technological improvement, education and better infrastructure.
ReplyDeleteResource allocation arises as an issue because the resources of a society are in limited supply, whereas human wants are usually unlimited, and because any given resource can have many alternative uses. Technological improvements include creation of new products, quality improvement and efficiency gains for existing products such as cars, lighting, computers, software. Government often provides free education to help vulnerable and poor families. However, government or public schools are not as good as private schools in terms of facilities and others. The teachers in public schools may be irresponsible because they are paid lower wages. Infrastructure is also needed such as highways, roads, electricity, street lights, etc. This might help reduce the traffic on streets and decrease the amount of vehicles through public transportation.
The fourth objective is international trade and balance of payment, this includes exports and imports in a country. If exports are less than imports, means that country produces less and consumes more. If exports are greater than imports, means that country produces more and consumes less. Positive balance of payment is when imports are greater than exports. Negative balance of payment is when exports are greater than imports. When expenses of a country are greater than its income, then a country would have to borrow whether domestic or international. International can be from IMF (International Monetary Fund) or World Bank (IBRD).
Government may increases tax on imported goods to avoid consumers buying too much imported goods and services. The aim is to decrease imports and increase exports, in order to obtain positive balance of payment. Government also tries to reduce expenses of a country so that it will not exceed its income, this is to avoid too much borrowing.
96% Originality
Resources:
https://www.stlouisfed.org/publications/re/articles/?id=2360
http://www.britannica.com/EBchecked/topic/499498/allocation-of-resources
Notebook
There will be economic problems that will be experienced in countries. Those economic problems can be uncontrolled inflation, low level of employment, and more. Therefore, government will normally have macroeconomic objectives to solve those economic problems. Those objectives are; high and stable level of employment, stable level of price, high economic growth and balance of payment. Government will also have two policy instruments that will help them reach their objectives. Those instrument policies are fiscal and monetary policy.
ReplyDeleteFirst of all, inflation is the increase in price due to the increase in demand. A controlled inflation is one of the prosperity. This is because, when inflation happens, the company itself will receive excessive profit than usual. However, when inflation gets uncontrolled, then it becomes an economic problem. Uncontrolled, meaning, that the price increased rapidly and shockingly without giving a warning to the customers. This normally happens when aggregate demand is higher than aggregate supply.
Therefore, what government will do is to contraction demand side policy, to decrease the aggregate demand. How? By increasing the direct tax, reduce subsidy, and increase interest rate. While the demand is decreasing, they will expansionary supply side policy. By producing more products, increase productivity within a company and more.
Second of all, the other way around may happen. In other words, the aggregate supply is greater than the aggregate demand. In this case, the supply must be contracted, while the demand must be expanded. This can be done by stopping the production of the goods, to contract the supply. To increase the demand, companies can provide discounts, reduce in price or any benefits that will attract the customer to buy their products. They can also reduce interest rate, in order for consumers to borrow money and consume a lot of goods which will also expand the aggregate demand.
Third of all, the economic growth. A government will want a high increase in the economic growth. Yet, sometimes, within a year it can reduce. For example, in 2012, the total production is 100%. On 2013, it became 85%. As you can see, as 1 year passed, the economic growth did not increase, but it decreased. This is recession, or in other words, a negative economic growth. Government will try to have a sustainable development by rising the national income, which will increase in the total output.
Last of all, the level of employment. Government have public corporations where they employ those that are unemployed to work for the government. For example, taxation services, fire service and more public corporations. Now, to have those corporations, they must invest money. In fact, the tax that citizens pay from the direct tax is to be used for the salary of the employees as well. Working for the government is also a benefit for the employees because they get full security, fringe benefits are given and etc.
Those examples of policies are normally used by the government to help them achieve their macroeconomic objectives. However, even if they used the monetary policy or the fiscal policy, sometimes it may lead to unexpected events, failures or disadvantages. This is because not all the instrument policy will automatically provide a good result.
ReplyDeleteFirst of all, inflation. To stop inflation, government will give more direct tax, interest income or decrease subsidy. However, this might not work as well. This is because for those that are wealthy, they will not mind if the tax is increased, because they are wealthy. Therefore, the ones that will mine are the ones that are poor. If the government increase the tax then they will become even poorer. They will not have the ability to pay for their needs in life and for their families as well. And at this point, when the inflation gets uncontrolled and most firms have already increased their prices, then it will be a huge economic problem for the country. It might even cause corruption.
Last but not least, employment. Even if there are public corporations around, it doesn't mean that employment will rapidly increase. This is because, getting approved of the job is not as easy as it sounds because you have to fill the requirements and expectations. Also, if they do get the job, then the salary might also decrease. This is because the salary of the employees depend on the taxes that are paid by the citizens. Therefore, if there are some that pay less often as other citizens. In case of that, the salary might decrease. Not to mention, that the taxes will also be used to improve the infrastructure in the country.
This will be bad for some of the employees because they need the wages or else their standard of living will fall, quality of life will fall, expenditure and demand will also fall.
In conclusion, the policy instruments are very helpful for the government because they help the government reach their objectives successfully. It helps them figure out ways to decrease the demand, increase the supply or the other way around. Also, the policy instruments are important for them. It will help them solve the economic problems before it gets too uncontrolled and increases more economic problems.
ORIGINALITY: 97%
sources: Notebook and textbook
Policy instruments are the tools that government can use to overcome problems and to achieve objectives. Policy instruments include fiscal policy and monetary policy. These two policies are used in various combinations to direct a country's economic goals. Fiscal policy is the use of government spending ad taxation to affect the level of growth of aggregate demand, output and jobs, which may affect the economy. On the other hand, monetary policy is the policy used by central bank that involves managing money supply that affects the interest rate.
ReplyDeleteThe four basic objectives that government want to achieve are high and stable employment, low and stable inflation, high and sustainable economic growth, and international trade and balance of payment.
Fiscal policy can have effects on employment, as one of its goals is to reduce unemployment. Taxation is a fiscal policy tool that can be used to increase employment. Government would cut tax to reduce unemployment, because reducing tax increases consumers’ wealth that may lead to increase in consumption, which increases revenue for businesses for expansion and hiring. Government can increase employment by creating more jobs available for the unemployed. Government can funs on work programs, such as building infrastructure or train systems that increases employment as well as disposable income.
However, reducing taxes and increasing public expenditure may lead to bigger public borrowing and debts. Reducing tax means that government receive less revenues, and the spending may be greater than its revenue, which the government can lose money and increase debts overtime. When economic growth is high and unemployment is low, the government may increase taxes and reduce spending to make up for debts accumulated during periods of low growth and high unemployment.
Fiscal policy can also be used to increase economic growth. Other goal of fiscal policy is to have high and sustainable economic growth. Fiscal policy may have impact on economic development, as the policy can control and manage the tax charged for people and how much should the government spend. Proper management by the policy help to develop the economic. Reducing unemployment also contribute in economic development.
The disadvantage of using fiscal policy for economic development is that if management of the public revenue, borrowing and debts are not well managed, it may not lead to development in economic. It may also create problems in the maintenance of pricing stability. Other disadvantage is inflexibility. Changes in direct taxes or government spending may take considerable time because of both political and moral reasons.
To achieve government objectives of wanting low and stable inflation, monetary policy is used. Inflation is an increase in prices of product and fall in the value of money. High inflation may harm the economy, but too low inflation can lead to deflation. To maintain inflation at a moderate level, monetary policy can take actions by increasing interest rate. Excess demand for goods and services may lead to inflation. Monetary policy can control the growth of demand through an increase in interest rates and a contraction in the real money supply. Higher interest rates reduces aggregate demand as it discourage borrowing, increase savings rate, etc.
ReplyDeleteUsing monetary policy for low and stable inflation may have problems. The interest rate charged may fall very low during recession of the country, and demand for credit may rise, which made the supply to become trapped in the system. Monetary policy may have problems like goal conflicts. Inflation may be worse in the future if monetary policy remains expansionary for too long.
Balance of payment includes imports and exports. A positive balance of payment is when the exports are lesser than the imports which means that the country produce less and consume more goods. A negative balance of payment is when the exports are greater than the imports, which means that the country produce more that the good that they consume. The economic will have surpluses when the exports are lesser than imports, and shortages when exports of goods are more than the imports.
Monetary policy works on balance of payment to set interest rates for export goods and import goods. This interest charges usually varies depending on the imports and exports goods. Monetary policy will aim for a positive balance of payment, and the interest rates will be charged to meet the positive balance of payment.
As the conclusion, government uses policy instrument as a tool to achieve basic objective that will lead to better prosperity, and increases income and output of the country. However, the policy needs to be maintained and managed well to achieve the objectives and not to conflict goals.
Originality: 98%
Resources:
− http://www.dnb.nl/en/about-dnb/duties/monetary-policy/
− http://smallbusiness.chron.com/unemployment-fiscal-policy-12614.html
− http://strategistng.blogspot.com/2013/02/objectives-of-fiscal-policy.html
− Notebook
The four major objectives of the government are full employment, price stability, a high, but sustainable, rate of economic growth, and keeping the Balance of Payments in equilibrium.
ReplyDelete1. Full employment, or low unemployment
The claimant count is the older, more out of date measure of unemployment used in the UK. Those counted must be out of work, physically able to work and looking for it, and actually claiming benefit.
For a more realistic count, and for international comparisons, the ILO (International Labour Organisation) measure is used. Many people only slightly inconvenienced unemployed workers are paid these benefits rather than swell the unemployment numbers.
Note the issue of active and inactive members of the population of working age. Only those who are active are included in the working population, which is defined as all those who are employed or registered unemployed.
2.Price stability
Inflation is usually defined as a sustained rise in the general level of prices. Technically, it is measured as the annual rate of change of the Retail Price Index (RPI), often referred to as the headline rate of inflation. For prices to be stable, therefore, the inflation rate should be zero. Generally, governments are happy if they can keep the inflation rate down to a low percentage. The UK government prefers to target the underlying rate of inflation, or the annual percentage change in the RPIX. This is the same as the RPI except housing costs are removed in the shape of mortgage interest payments. It makes sense for the government to use this measure because the weapon they use to control inflation, interest rates, directly affects the RPI itself.
3. High (but sustainable) economic growth
Economic growth tends to be measured in terms of the rate of change of real GDP (Gross Domestic Product). When the word real accompanies any statistic, it means that the effects of inflation have been removed. GDP is a measure of the annual output of an economy. Sometimes GNP (Gross National Product) is used, which is very similar to GDP. Growth figures are published quarterly, both in terms of the change quarter on quarter and as annual percentage changes.
4. Balance of Payments in equilibrium
Balance of Payment (BoP) of a country is defined as, "Systematic record of all economic transactions between the residents of a foreign country", balance of payments includes all visible and non-visible transactions of a country during a given period, usually a year. It represents a summation of country's current demand and supply of the claims on foreign currencies and of foreign claims on its currency. While the overall BOP accounts will always balance when all types of payments are included, imbalances are possible on individual elements of the BOP, such as the current account, the capital account.
There are also conflicts between these objectives. Unfortunately, it is virtually impossible for a government to score in all these goals at once. We shall begin with the three major conflicts.
ReplyDelete1. Healthy growth and low inflation
If an economy grows too quickly, especially if it is due to excessive consumer spending, then demand will outstrip supply and prices will rise. Equally, the steps taken to keep inflation low, like relatively high interest rates, can often restrict growth via reduced consumer spending and investment. It is difficult to achieve both aims.
2. Healthy growth and a Balance of Payments equilibrium
When an economy is growing quickly, consumer spending tends to be high. Consumers tend to buy goods from abroad in preference to home produced goods. In the old days when the Balance of Payments was seen as possibly the most important macroeconomic objective, either the exchange rate would give, or import controls were used, or the government had to deflate the economy, implying a low rate of growth.
3. Low unemployment (or full employment) and low inflation
This is the classic conflict in economic theory.
These two variables have, in theory, an inverse relationship. If a government tries to reduce unemployment through reflationary measures, such as lower interest rates or increased public spending, then the resulting reduction in unemployment will push wages, and then prices, higher. On the other hand, when the government tries to control high inflation with higher interest rates and reduced spending, the resulting reduced consumer spending and lower investment will result in job losses.
So, the conclusion is: The government policies are very important for the economy, if the government can apply those rules properly and carefully. There are also some conflicts between the objectives that the government should handle in order to achieve economic welfare.
Originality: 85%
References:
- http://www.tutor2u.net/economics/content/topics/macroeconomy/government_policy.htm
- http://businesscasestudies.co.uk/hm-treasury/steering-the-economy/government-aims-and-objectives.html
- http://en.m.wikipedia.org/wiki/Balance_of_payments
-Notebook
This comment has been removed by the author.
ReplyDeleteThe study of how national economies work are called macroeconomics, which involves the interaction and changes in total demand, output and national income, employment and price inflation in the country. Economic problems mainly revolve around them. Government should take actions in these problems, therefore, they set macroeconomic objectives. Most government have four main objectives when intervening in their economies. The objectives include a low and table rate of inflation in general level of prices, high and stable employment levels, achieving high economic growth in total output with increase standards of living, and a stable balance of international trade and payments.
ReplyDeleteA macroeconomy has a demand and supply side, which are conditions of aggregate demand and supply determining the level of prices, output, and employment. Government will use policy instruments, or actions to control and influence aggregate demand and supply in the economy, and in turn can help achieve their macroeconomic objectives. Two examples of demand side policies are monetary (decisions taken by central banks) and fiscal policies.
One of the main economic problems today is price inflation. Inflation, a continous rise on prices, can be bad for businesses and economy when it rises too quickly, as it can reduce the purchasing power of people with same incomes and pressurizes people on low incomes. It also increases the cost needed to be taken out by business. To overcome this, a business might carry out fiscal policies, as they involve and controls the level of public expenditure, manages aggregate demand and economic activity. To know the fiscal policy needed to input to fix inflation, we should first know what are their causes. Inflation is caused mainly by the rise in aggregate demand not matched to the aggregate supply, rapid growth of money supply (pull) and increase in raw material prices, labour, and high levels of indirect taxes (cost push), etc. However, even if inflation decreases, ontractionary fiscal policy may reduce employment, and also growth in output.
Therefore, a government may aim on using contractionary fiscal policy. It helps reduce the pressure on prices, by cutting aggregate demand through reduction in public expenditure and/or by raising total taxation. That way, the high levels of aggregate demand can be decreased, therefore balancing with the level of aggregate supply. A budget deficit will be cut or will go into surplus if tax revenues exceed public spending.
The second objective is to overcome the problem of high unemployment level. Those who are unemployed could not find living for their own. As they do not produce any goods/output, the national total output will be likely to fall with high levels. Government may also have to give out welfare payments to support them and their families. On behalf of it, taxes must also be raised on other people, that can reduce their disposable incomes.
Fiscal policy helps reduce unemployment by helping in the increase of aggregate demand and the rate of economic growth. Government will need to use expansionary fiscal policy; which involves in cutting taxes and increasing government spending. Lower taxes given increase disposable income and therefore help to increase consumption, and a higher aggregate demand (AD).
ReplyDeleteWith an increase in AD, there will be an increase in Real GDP. When firms produce more, there will be an increase in demand for workers and therefore ldecreases demand-deficient unemployment. Also, with an increase in aggregate demand and strong attaining economic growth, fewer firms will go bankrupt which means fewer job losses.
The third objective, that includes attaining strong economic growth to national output. With economic growth, it will boost output and incomes, thus raising living standards. If output falls over time or remains the same, an economy will suffer, as living standards and government tax revenues will fall, hence government spending will be cut. Entrepeneur can’t invest in new firms.
Government may plan on expansionary monetary policies to avoid the situationss mentioned. This involves a cut in interest rates or the expansion in money supply to increase aggregate demand.When interest rates are reduced, more people will be able to borrow money more cheaply than before. Reducing interest rates in an economy helps raise consumer exenditure on goods and services and the increase in investments expenditure. As a result, it will boost output and employment opportunities.
Lastly, governments aiming a stable balance of international trade and payments may consider the exchange rate policy. Many countries imports from overseas and also make investments outside. Many seek to balance their inflows and outflows of income from international transactions. If there are sudden changes in the amount of money flowing of a economy, it will be disruptive to the banking system.
By lowering the interest rate can reduce the exchange rate of a currency. This will reduce chances of foreign inflation and cost overseas residence of buying goods exported from the country. In turn, it can also reduce export earnings and boost output and employment.
Policy instruments, especially demand- sided ones such as monetary and fiscal policy, isn’t always efficient in fulfilling government objectives. Mainly, one way of policy will bring an advantage to the economic condition, but at the same time will disadvantage another. The previous example is contractionary fiscal policy. It may help to reduce inflation rates, but the policy tend to reduce employment and growth in output.
Fiscal policies are often criticized of their influence to the levels of aggregate demand and economic activity. Many argue there is not a clear trade-off between higher leves of inflation and low levels oe economic unemployment. It is also difficult for government to know exactly when and by how much to expand public spending or cut taxes during economic downturn. Increasig taxes o incomes and profits can reduce incentives to work and enterprise. Monetary policies also bring conflicting growth and time lag to the economy.
To conclude the above, policy instruments are very well needed in fulfilling the macroeconomic objectives, especially the main four, of a government, based on their conditions and use. They are well structured and designed to meet the needs of the nation at most. However, they do not always meet all objectives at once. Therefore, a government must carefully study the economic condition at that time, so that it can meet the policies, to be able to form a strong economic environment.
Originality: 100% Unique Content (smallseotools.com)
Sources:
http://www.ehow.com/info_8239910_advantages-disadvantages-monetary-policy.html
http://www.economicshelp.org/blog/3881/economics/policies-for-reducing-unemployment/
http://tutor2u.net/themes/inflation/A2_Inflation_Notes/Main_Causes_of_Inflation.htm
http://en.wikipedia.org/wiki/Macroeconomic_policy_instruments
first of all,there are 4 government's objective, first is Low unemployment, the second one is Low and steady inflation , the third one is Steady and sustainable economic growth, and the forth one is A positive balance of payments.
ReplyDeletefirst, low unemployment can be defined as an non-institutionalized civilian adults that are willing to have a job, but dont have one. it's usually measured by the unemployment rate, but the unemployment rate is not the percentage of the people that dont have a paid job. unemployment should be counted using bureau of labour statistic (BLS) which conducts a monthly telephone survey of around 50,000 randomly selected adults. This Current Population Survey is used to estimated the number of Americans who are:
(1) employed - adults who spent the majority of the previous week working.
(2) unemployed - adults who did not spend the majority of the previous week working at a paid job, but who looked one.
(3) not in the labor force - adults who did not spend the majority of the previous week working at a paid job and who did not look for one.
second, Low and steady inflation. inflation is a sustained increase in most of the price level of goods and services in an economy over a period of time. with low and sustainable inflation, the unemployment level could fall and the wage rate will fall also. the interest rate of the central bank will also fall, because when the needs and wants of people are fulfilled, so they dont need to borrow money from the bank also.
third is steady and sustainable growth can be defined as a rate of growth which can be maintained without creating other economic problems, especially for the future generations. There is clearly a tradeoff between rapid economic growth today, and growth in the future. if the growth of the economy is steady and sustainable, so the unemployment level will fall and the gdp per capita will increase.
the forth is positive balance of payments, positive balance of payments means that the export is mora than the imports. when the export is more than the import, so the number of employment will increase, the country will be more developed, and the GDP will increase also.
there are 2 types of government's policy,first is fiscal policy and the second one is moneary policy.
the fist one is fiscal policy.fiscal policy is the use of government revenue collection and expenditure to influence the economy, or else it involves the government to change the levels of taxation and government spending in order to influence Aggregate Demand and the level of economic activity.
the second one is the monetary policy. 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.
The conclusion is that after we know about the definitions, so we can see which one will be more effective using fiscal policy or monetary policy.Actually to achieve the objectives both of them are needed, because fiscal policy is controlling the demand part and the monetary control the supply part.
originality:(based on smallseotools.com)93%
resources:-en.wikipedia.org/wiki/Fiscal_policy
-en.wikipedia.org/wiki/Monetary_policy
-note book
-text book
The four objectives in the government policy consist of: High employment level, low inflation level, high and sustainable economic growth, and maintaining healthy balance of payment.
ReplyDeleteMain causes of inflation are Rising imported raw materials costs, Rising labour costs, and Higher indirect taxes imposed by the government
These are the policies used by the government:
Demand Side Policies:
1. Fiscal Policy
Fiscal policy can decrease unemployment by helping to increase aggregate demand and the rate of economic growth. The government will need to pursue expansionary fiscal policy; this involves cutting taxes and increasing government spending. Lower taxes increase disposable income, and therefore help to increase consumption, leading to higher aggregate demand (AD). With an increase in AD, there will be an increase in Real GDP .If firms produce more, there will be an increase in demand for workers and therefore lower demand-deficient unemployment. Also, with higher aggregate demand and strong economic growth, fewer firms will go bankrupt meaning fewer job losses.
Advantage: significantly increase national income. Disadvantage: inflexibility.
2. Monetary Policy
Monetary policy would involve cutting interest rates. Lower rates decrease the cost of borrowing and encourage people to spend and invest. This increases AD and should also help to increase GDP and reduce demand deficient unemployment. Also lower interest rates will reduce exchange rate and make exports more competitive.In some cases, lower interest rates may be ineffective in boosting demand. In this case, Central Banks may resort to Quantitative easing. This is an attempt to increase money supply and boost aggregate demand
Advantage: Low inflation. Disadvantage: Conflicting goals
Supply side policies:
Supply side policies deal with more micro-economic issues. They don’t aim to boost overall Aggregate Demand, but seek to overcome imperfections in the labour market and reduce unemployment caused by supply side factors.
Originality: 87%
Sources:
http://www.economicshelp.org/blog/3881/economics/policies-for-reducing-unemployment/
http://www.ehow.com/info_8239910_advantages-disadvantages-monetary-policy.html
http://tutor2u.net/themes/inflation/A2_Inflation_Notes/Main_Causes_of_Inflation.htm
Government in a country have 4 objectives which is :Having Low and Stable inflation, High and Stable Employment, High sustainable economic growth, and last stable balance of payment.
ReplyDelete-Low and Stable Inflation:
Government uses Fiscal Policies to control inflation and the demand in a country and it is related to Tax and government spending. Usually government collects money from public in a form of Tax and spends the money to make public buildings and defenses and to pay the government workers. The government constantly monitors the aggregate demand of the country t measure the inflation rate of a country, when the demand is high it means and price rises this means that the government spends to much on government expenditure, to tackle this problem government cut less budget for road works and may increase tax to make it stable again, but in the other hand, when the economy is falling and heading for recession government increases it's expenditure to make the economy stable.
-High and Stable Employment:
one of the government objectives that aims for high employment and low unemployment, but however this doesn't means that there will be no unemployment it just means that the government successfully achieve a higher proportion of employment rather than unemployment.
-High and Stable Economic Growth:
Governments want this because of the wealth of benefits it brings such as increasing living standards. Governments nowadays stress the importance of sustainable economic growth because it does not endanger future generations’ ability to expand productivity. This can be achieved aggregate supply match aggregate demand.
Governments try to achieve economic growth that can match trend growth, which is the increase in potential output over time. It's basically a measure of how fast an economy can grow without generating inflation.
-Stable BOP( Balance of payments):
The balance of payments (BOP) is the method use to monitor all international transactions at a specific period of time. Usually, the BOP is calculated every year. All trades conducted by the private and public sectors are accounted for in the BOP in order to determine how much money is going in and out of a country. If a country has received money, it is known as credit, and if a country has paid money,it is counted as debit. Theoretically, the BOP should be zero, meaning that assets and liabilities should be balance.
In conclusion the policies have really been effective on helping the government achieve the four macroeconomy objectives, however the policies doesn't always help in certain circumstances such as: if the country already undergoes a recession before the policies could take affect.
References:
-Economics Cornered Notebook
-http://thepeaktimes.wordpress.com/2013/03/12/objectives-of-government-economic-policy/
-http://www.investopedia.com/articles/03/060403.asp
-http://www.dineshbakshi.com/igcse-business-studies/external-environment/revision-notes/60-government-macro-economic-objectives
Originality:89% (based on smallseotools.com)
The four objectives in the government policy are:
ReplyDeletelow inflation level:
Government wants the inflation level low and stable so that the society will not fell any panic so there is no economic recession
high and sustainable economic growth:
Government need high an sustainable not only high at on month and then decrease rapidly and go up again it will cause many problem in the market of a country
maintaining balance of payment:
The country need to maintain balance of payment so the money value will be not decrease
These are the policies used by the government:
High employment level:
Government like less unemployment so it will increase the GDP of a country and the wealth fare
Demand Side Policies:
1. Fiscal Policy
The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as increasing the interest rate, or changing the amount of money banks need to keep in the vault (bank reserves).
Fiscal policy can decrease unemployment by helping to increase aggregate demand and the rate of economic growth. The government will need to pursue expansionary fiscal policy; this involves cutting taxes and increasing government spending. Lower taxes increase disposable income, and therefore help to increase consumption, leading to higher aggregate demand (AD).
2. Monetary Policy
To illustrate how the government could try to use fiscal policy to affect the economy, consider an economy that’s experiencing a recession. The government might lower tax rates to try to fuel economic growth. If people are paying less in taxes, they have more money to spend or invest. Increased consumer spending or investment could improve economic growth. Regulators don’t want to see too great of a spending increase though, as this could increase inflation.
Another possibility is that the government might decide to increase its own spending – say, by building more highways. The idea is that the additional government spending creates jobs and lowers the unemployment rate. Some economists, however, dispute the notion that governments can create jobs, because government obtains all of its money from taxation – in other words, from the productive activities of the private sector.
Supply side policies:
They don’t aim to boost overall AD, but they want to improve in the labour market and reduce unemployment
Government policies is very effective because those four objective are very importance to the global market and it's country so yes there is many possible effective for the government policies to Get that objectives
Sources:
-http://thepeaktimes.wordpress.com/2013/03/12/objectives-of-government-economic-policy/
-http://www.investopedia.com/articles/03/060403.asp
Government want to have control on business activities because every of the activities have benefits and losses which will impact the economy. There are reasons why government wanted to have control over the business activities. Benefits. Government wants production of goods that are useful to satisfy needs and wants for consumers, create more employment or increase in standards of living for workers, introduce products that are new which will reduce cost and also be provided a wider range of products, taxes which will help production of public goods and public services, and so that business may earn foreign currency in exports and this could be spent on imports.
ReplyDeleteBut there can also be possible effects that are undesirable when government has control over business activities. Business might ruin cheap but beautiful areas, more works that are unsafe and decrease in amount of wages since business wants to lower their production cost, more pollution, increase in production of dangerous goods, advertising which may mislead the consumers, monopolies, and etc.
All Government has their own aims for their own country. Government policies are needed because these policies can achieve the government aims or objectives. There are 4 objectives and aims of government. They are low rate of inflation, low rate of unemployment, balance of payment, and stable economic growth in the country.
Low rate of inflation. Inflation is the term when price rises. Government wants to keep the rate of inflation as low as possible because inflation leads to many disadvantages. Worker’s wages buy less than before which leads to a fall on the workers’ real income. When inflation happens in a country, price of local goods or goods from their own country will increase more than price of international goods or goods from outside of the country which will lead to more consume of imports. Cost for startup of business will increase, and people’s standards of living will fall.
Low level of unemployment. Government wants to keep the rate of employment in the country as low as possible to decrease undesirable effects such as a decrease in national outputs because of less employment and that government will have to pay cost for unemployment benefits in the country, which is expensive.
Stable economic growth. A country is growing when its GDP (gross domestic product) is increasing. Gross domestic product is the total goods that are produced in a year in a country. When economic growth increases, standards of living will also tend to increase. When the gross domestic product fall, problems will tend to arise. The country’s output decreases, a fall in business standards of living, business won’t be able to expand because the business has less money for invest, and etc.
Balance of Payments. Exports earn foreign currency, while imports are paid for by foreign currency (or vice versa). The difference between the value of exports and imports of a country is called balance of payments. Governments try to achieve a balance in imports and exports to avoid a trade deficit, when imports are higher than exports. Of course, the government will lose money and their reservoir of foreign currency will fall. This leads to more borrowing in the country and the countries own currency may worth less.
Therefore, government has policies to solve these problems. The main way that government can influence activities for business is through economic policies. There are 3 types of economic policies. They are fiscal policy, monetary policy, and supply side policy. Fiscal policy includes public spending and taxes. Monetary policy is the control of the amount of money in the economy through ways such as interest rates. Supply side policies aim at increase of efficiency.
DeleteFiscal Policy. Government spending could benefit firms such as defend industries, manufacturers of buses, construction firms, and etc. Government can raise their money through tax. There are for types of text, income tax, value added tax, import tariffs, and profit tax. Income tax bases on the percentage of a person’s income. Profit tax is the percentage of the profit a business makes. Governments put tariffs on imports to make local goods look more competitive and also to reduce imports.
Monetary policy. Government has authority to change interest rates through the central bank. Rise in interest rate will impact people borrowing from the bank. Businesses who owe to bank will have to pay more, resulting in less retained profit. People are more reluctant to start new businesses or expand. Consumers who took out loans such as mortgages will now have less disposable income. They will spend less on other goods. Demand will fall for businesses that produce luxury or expensive goods such as cars because people are less willing to borrow. Higher interest rates will encourage other countries to deposit money into local banks and earn higher profits. They will change their money into the local currency, increasing its demand and causing exchange rate appreciation.
Supply side policies. These policies aim to make the countries economy more efficient so that they can produce more goods and compete in the international economy. In doing so their GDP will rise. Privatisation. Its aim is to use profit as an incentive to increase efficiency. Improve training and education. This obviously increases efficiency. This is crucial to countries with a big computer software industry. Increase competition. Competition causes companies to be more efficient to survive. Governments need to remove any monopolies.
In conclusion, these 3 types of government policies are very helpful to overcome those 4 problems of government.
Source: Economic Textbook
Originality: 96%
Kevin 8C
There are four main objectives for a government in ruling over a place. First objective is low and stable inflation rate, second is high and stable employment, third is economic growth in national output, and fourth is a stable balance of international trade and payments.
ReplyDeleteThere are also four policies that will help the government to reach their objectives. First policy is the fiscal policy and the second policy that will help government is monetary policy, third is demand side policy, and fourth is the supply side policy.
First objective is the low and stable Inflation. Inflation is a continuous rise in the average level of prices. If inflation continues too quick, it can be bad for business and economy because it reduces the purchasing power of people’s income, it causes hardship for people on low incomes, and it increase business costs especially if workers demand for high wages, and it makes goods and services produced become more expensive to buy than those purchased from other countries that has lower inflation rate. Low and stable prices therefore makes it easier for firms to manage their costs, for exporters to sell their products overseas and for consumers especially those with low incomes.
Second objective is the high and stable employment. If unemployment increases, the total national output is likely to fall and government will increase the tax that will be paid by working people to support those who are not working. By this, the spending on goods and services will be going down. High level of employments therefore helps to increase output, income, consumer demand and living standards.
Third objective is the economic growth in national output. Economic growth will boost output and incomes. This will help rises the living standards. If the economy doesn’t grow, an economy will suffer because employment, incomes, and living standards will fall, government tax revenues will fall and government spending will have to be cut, the revenues and profits of firms will fall, and entrepreneurs will not invest in new firms.
Fourth objective is a stable balance of international trade and payments. Many countries sell exports of goods and services to overseas residents and receive other incomes and investments from overseas. Inward investments by overseas firms and the sale of exports help to create new jobs and incomes in an economy. At the same time, many countries buy imports from producers overseas and also make investments in other countries. Most countries seek to balance their inflows and outflows of income from international transactions. Sudden changes in the amount of money flowing into or out of an economy can be very disruptive to the banking system, firms and government. For example, the following may happen if a country has a deficit on its balance of payments with the rest of the world: it may run out of foreign currency to buy imports and the value of its currency may fall against other foreign currencies and make imports more expensive to buy. This can cause an imported inflation.
First policy is the fiscal policy. Central government, state/provincial government, and district government control fiscal policy. Fiscal policy controls public revenue that comes from the income (direct and indirect taxes), public expenditure, which includes capital expenditure, current expenditure, public sector enterprises, and public goods. Fiscal policy also controls public debt or government debts, and public borrowing.
DeleteSecond policy is the monetary policy, central bank is the one who is in charge with this policy. In Indonesia is called Bank Indonesia. It controls the interest rate, bank rate (rate at which the commercial bank borrows), CRR (Cash Reserve Ratio), SLR, and Reppo Rate.
Third policy is the demand side policy. Demand side policy tries to influence the level of AD (Aggregate Demand- the total consumption/output) in an economy using a number of different policy instruments; those are the total public expenditure, the overall level of taxation, and the rate of interest. Household consumption, firm’s investment, government expenditure, and export- import provides aggregate demand.
Fourth policy instrument available is the supply side policy instrument. It aims to boost the aggregate supply of goods and services in an economy. Boosting the supply of goods and services in an economy will help to raise the rate of economic growth and employment, increase the supply of exports and reduce inflationary pressures because more goods and services will be available to satisfy aggregate demand.
So in conclusion, there are four types of policies that can help the government to reach their objectives. The policies are fiscal policy, monetary policy, demand side policy, and supply side policy. They help the government to reach their objectives, which are to have low and stable price inflation, high and stable employment, economic growth in national output, and a stable balance of international trade and payments.
Source: Economic Textbook and Corner Notebook
Originality: 90%
Fernando 8C
The four basic objectives if government policies are to keep the inflation low and stable, to increase and stable the employment, economic growth and balance of payment. The most common problems that are usually encountered by the country are inflation, employment, import and export. Hence, these political instruments are present to help government achieve the different objectives. These political instruments can be used in any of the objective(s), it depends on how the government wants it to be.
ReplyDeleteFirstly, Let me introduce the different kinds of political instruments. There are two types of political instruments and they are Fiscal and Monetary. Fiscal depends on the government. While monetary doesnt only depend on government but it also depends on banks and money. Public revenue, public expenditure and public borrowing are included in fiscal policy. While interest rate, Bank rate CRR and SLR are included in Monetary policy. Fiscal and Monetary policy are combined together in helping the government.
There are also problems with demand and supply in a country. Let us say that the Aggregate demand is greater than the Aggregate supply. This will make the market think about doing inflation. Inflation is good if the market is able to control how big and how stable the inflation is. But once the inflation gets too big or too high, this will be bad. in this case, at first the government will help this market in several ways such as increasing tax so that the demand will fall since the income of each individual will be less because of the tax (this is called the contractionary of demand), or maybe government can help the market to increase borrowing in order to increase the supply for the demanders (this is called the expansitory of supply). The different kinds of political instruments can be applied in this case. But it depends on the condition.
Theres another problem where the Aggregate supply is greater than Aggregate demand. In this case the government may help by lowering the tax in order to make the income of an individual rise and increase demand of the prdoduct. By doing this the demand will increase and finally the remaining supply wont be wasted. The increase in interest rate can also affect the production since the firm will not be able to borrow money in a big amount and this will make the firm produce less since the firm dont have much capital to invest.
These two problems can be solved using the demand side policy and supply side policy.
Beside solving these two problems, all the political instruments can also help government solve the common problems. First, to keep the inflation low and stable, government can increase the tax in order to decrease the demand so that the price wont keep increasing. An increase in tax will reduce the income of each person. In this case, people will be so worried about saving their income. Another example is that when we increase the borrowing of a firm, the number of employment will be increasing. This is because the firm will be able to hire more employees since the business is able to borrow money from bank. These two are just some, there are still a lot of ways on how we apply the political instruments in the objectives. The monetary policy can also be applied on the objectives. When the central bank produces more money for poor people, this will make the growth of the country. A reduction on interest rates might also help the bank to attract firms to borrow money in order to produce and employ.
So over all these things we could see the different ways on how the political instruments affect the different objectives that government is trying to achieve. But these political instruments do not always help. Since different people have different thoughts on how to solve their own problems. The ways dont always happen as how government has expected.
originality 100%
ReplyDeleteOver the centuries, economists and politicians have debated the most appropriate role of government in relation to the economy. Many have attempted to determine the most efficient means by which the government can influence the economy: activity of private businesses and consumers.
ReplyDeleteThe government has played an impact on the economy, with the purpose of maximizing the well being of the economy. What the government typically does is to assure that the economy grows at a steady level, the level of employment is increasing, and the price level is stabilized. To achieve them, the government generally uses methods also known as the policy instruments.
Every market has its own limitations. Some economists believed that the government interference could do a great deal to overcome them as it regulates the economy.
Firstly, the government policies are used to reduce inflationary pressures. In most countries, the monetary policy acts as the most important tool in maintaining low and stable inflation. In order to reduce inflation, the monetary authorities will have to reduce aggregate demands. To do this, interest rates are increased, reducing consumer spending. The slower the growth of aggregate demands, the lower the inflation.
Another objective of the government is to reduce unemployment. One of the main strategies to reduce unemployment is through the fiscal policy. Most times, the government will pursue the expansionary fiscal policy to achieve this particular objective. This involves increasing aggregate demands and the rate of economic growth – cutting taxes and increasing government spending.
By increasing the aggregate demands, the real GDP will increase. If firms will be producing more outcomes, there will be an increase in the demand for workers and thus decreasing unemployment.
In addition, if the government interference is done correctly and in a limited way, the government can correct market failures. Market failure is a situation where markets, if left on their own, will fail to generate socially efficient outcomes. Market failure occurs when the free market fails to allocate resources in an efficient manner.
The free market does not provide the most socially efficient product as producing and/or consuming them produce negative externalities. In this case, the government policies involving tax and subsidies can be used to help the government in correcting these externalities. By taxing productions that may harm the environment and subsidizing alternatives, the government will encourage firms to use the alternatives instead.
Then again, the government does not always make the right decisions and produce the right policy. Using the government’s policy instruments may even end up creating more problems than solving them. Government failure arises when government interference in the economy to improve market failure worsens the situation: a decline in welfare and economic efficiency instead of the otherwise.
ReplyDeleteFor instance, the government has a tendency to look for short-term key or solutions to economic problems than considering and analyzing the long-term side effects. This is bad for the economy as it will only provide short-term relief to particular problems, but does little to the structural problems.
Along with that, information failure is also another issue of the government, given that the government doesn’t necessarily understand the market enough to allow it to make effective decisions on the most efficient way to allocate resources. Most economists believe that in the efficient market hypothesis, the market will always have more information than the individual or government. Therefore, the market can’t be improved upon an individual or government.
Additionally, the government may experience crowding out, as it needs to finance an increase in public spending in order to achieve the government objectives for the economy. Financing an increase in the public spending and/or a cut in taxation may require the government to borrow extra money from the private sector. This doesn’t increase the overall aggregate demand, because even though the government is able to spend more, the private sector will have less to spend and invest. Thus, this phenomenon is known as crowding out.
Another example will be how the expansionary fiscal policy may create expectations of inflation. An expansionary fiscal policy involving reduction in taxes or increase in government spending is likely to result in inflation if the economy is in the range of the aggregate supply curve. This is because to achieve full employment, aggregate demands should increase. Hence, a cost-push inflation occurs.
To wrap it up, the government and its policy can be efficient enough to achieve the four basic objectives if the interference is done in a correct and limited way. However, if wrong decisions are made, the government may lead the economy to a decline in welfare and market inefficiency.
Anabelle – 8C
Originality (based on smallseotools.com): 100%
References:
• https://answers.yahoo.com/question/index?qid=20111023141109AApfFvb
• http://dwb.unl.edu/teacher/nsf/c09/c09links/www.casahome.org/policy.htm
• http://www.economicshelp.org/blog/5735/economics/should-the-government-intervene-in-the-economy/
• http://tutor2u.net/economics/content/topics/unemp/unemp_policies.htm
• http://www.tutor2u.net/economics/content/topics/externalities/government_failure.htm
The government has objectives, which are low and stable inflation, high and stable employment, higher and sustainable economic growth and international trade and stable balance of payment. These objectives can be obtained by policy instrument as of two types, fiscal policy and monetary policy.
ReplyDeleteThe first objective is low and stable inflation. Inflation means a general increase in prices and fall in the purchasing value of money. Contractionary monetary policy can applied to achieve this objective. It will involve increasing interest rate and cutting back the money supply to reduce aggregate demand. Raising the interest rate will make borrowing more costly. Diminishing the amount of money will control the number of customer and businesses to spend on goods and services. Contractionary fiscal policies can also be applied. It will be done by cutting aggregate demand by way of lowering public expenditure and increasing tax. This will lead to lower disposable income and consumer expenditure. Thus when these are done, inflation will be low and stable, which may also be known as having a stable price in the economy.
The following objective is high and stable employment, which also means as low level of unemployment. Expansionary monetary policy can be applied. It involves a decrease in interest rate and an increase in the money supply to improve aggregate demand. When interest rate are lowered, people and businesses can borrow money more cheaply than before. Reduction of interest rates will make saving money less attractive, which will help to increase consumer expenditure on goods and services and uplifting the investment expenditure by private firms. Expansionary fiscal policies can also be applied. It will involve lowering taxes on profits to escalate output and investments and on personal income that may encourage people to participate in the employees to upgrade their productivity. This will affect a rise in disposable income a person has. In this way, it will help expand output and employment opportunities.
The third objective is high and sustainable economic growth. Economic growth may also be referred to as development sustained in a long run. When there is high economic growth, the national income will increase, which will increase the gross domestic product also known as GDP. Economic growth needs to be achieved for several reasons. Government provides free education for poor families who are unable to pay. But public schools are not good compared to private schools, as teachers employed in those public schools may be negligent due to low payment and has low facility due to budget cost from government. Infrastructure investments should be applied, such as roads, highways and many more. These might help reduce the traffic jam by exploiting on public transportation such as buses, MRT, train and many more.
ReplyDeleteLastly, the objective is international trade and stable balance of payment. This could be referred to the external monetary flow or import and internal monetary flow or export. Countries may have export is less than import this is not good as the country consume more than producing (country produced < country consumed). Countries may have export greater than import this is good as the country produce more than consuming (country produced > country consumed). There is two types balance of payment, positive and negative. Positive balance of payment is when expenses are greater than income. When a country has greater expenses this may mean the country needs to either borrow domestically, within the country or internationally, outside the country, which includes from International Monetary Fund (IMF) and International Bank of Reconstruction and Development (IBRD) or World Bank. Negative balance of payment is when expenses are less than income. So the government needs to increase the exports (positive balance of payment), by increasing taxation on imports as it will avoid consumers to buy too much of imported goods and services.
As conclusion, the policies can effect the government in achieving the four main objectives. However, some policies may have some drawbacks to be faced when used.
Resources:
Notebook
Textbook
Originality: 98%
Monique 8C
There are four main objectives of government , these are :
ReplyDelete1. Low and Stable inflation . Inflation refers to a continuous rise in the average level of prices. If prices rise too quickly it can be bad for business and an economy because it reduces the purchasing power of people's incomes , it causes hardship for people in low incomes , and it increases business cost , especially if workers demand higher wages , and lastly it makes goods and services produced in the economy more expensive to buy .
2.High and stable employment . People who want to work but are unable to find a job will be unemployed . If unemployement happens , the total national output is likely to fall , and the government may have to spend more on welfare payments to support the unemployment and their families .
3.Economic Growth in national output . It will boost output and incomes. This will help to raise living standards. Without economic growth , output falls over time , an economy will suffer because employment, incomes and living standards will fall , government tax revenues will fall and government spending will have to be cut . The revenues and profits of firms will fall . And the entrepreneurs will not invest in new firms
4.Lastly, a stable balance of international trade and payments. Many countries sell exports of goods and services to overseas resident and receive ohter incomes and investments from overseas . Inward investments by overseas firms and the sale exports help to create new jobs and incomes in an economy . At the same tie , many countries buy imports from producers overseas and also make investments in other countries . Most countries seek to balance their inflows and outflows of income from international transactions . Sudden charges in the amount of money flowing into or out of an economy can be very disruptive to the banking system, firms and government . The bad things that could happens are it may run out of foreign currency to buyimports , and the value of its currency may fall againts other foreign currencies and make imports more expensive to buy . This can cause an imported inflation .
First of all , low and stable price inflation can be reduced by giving more tax on prices , so that the demand fall down and those fiscal policy will be acted as a break . But the disadvantage is that it will make the growth of a country slow down and firm's production and quality could be more less . Secondly , High and stable employment could be done by cut taxes on business , because by cutting taxes on business , it will make the investments higher and can increase their deman for labour , this is one of the demand-side policy instruments . Or it can be done also by increasing public expenditure , and therefore stimulate higher output and employment in an economy . But by cutting taxes , a country's income would fall fall down and can get through inflation. Thirdly , Economic Growth . Economic Growth or at the time country's are prospering , getting much money . But two types of problem . It can lead to inflation if the government doesn't creates a "break" , and can cause to environment troublings such as what has been caused in China because of hypergrowth . Lastly , A Stable Balance of payment could be made by increasing tax on imports , hence not many people wanted to import products from outside country . And can cause less demand for imports . But the disadvantage is that later the international corporations will decided not to open operations on the country and the firms on the country could become less competitive .
ReplyDeleteSo my conclusion is that the fiscal policies are not too effective and are not too less efective , because for example by fiscal policy we clear the recession (expansionary) than cames inflation , andif the countries to much reduce the tax , came recession again . BUt still fiscal policies are a little bit effective