4.1 + 4.2 Roles of Govt Flashcards
2 main roles of the govt
producer
employer
what are the roles of a govt as a producer
Supply merit goods
Supply public goods
control natural monopolies
welfare services
3 types of public sector employment opportunities
national, regional, local govt. authorities and their administrative offices
Govt agencies - delivery of public services
State-owned enterprises
What are the macroeconomic objectives of the government
Low and stable rates of inflation in general levels of price
High and stable level of employment/low unemployment
Encourage economic growth in national output and income
Encourage trade & secure favorable balance of international transactions
Income redistribution
Reduce pollution &waste; sustainable growth
What is economic growth
Economic growth refers to an increase in the gross domestic product (GDP)over a period of time.
What are the conflicting aims
Full Employment v/s Inflation
Economic Growth & Full Employment v/s BoP Stability
Economic Growth v/s Full Employment
Income retribution
Explain Full employment v/s price staibility
Low rates of unemployment boosts the incomes of workers and businesses. Demand increases as there is a increase in income which causes firms to increase their price. This leads to inflation (a conflict)
Explain Economic Growth & Full Employment v/s BoP Stability
When there is economic growth and full employment, the incomes of individuals rise. They start importing more foreign goods and consuming less domestic goods. This causes an increase in imports relative to exports which causes a deficit in the balance of payments.
Explain Economic growth vs Full employment
As economic growth occurs, firms may start to invest more money into capital equipment (machinery, etc). This would lead to firms becoming more capital intensive and letting go of more labour.
Conflict of redistribution of income
If the rich are taxed too much they may chose to migrate out of the country. This would result in the govt. losing the income from their taxes.
Definition of unemployment
People who are willing and able to work but are unable to find a job.
What is GDP
full form
Gross Domestic Product: Total output of goods and services in an economy over a period of time
Define negative economic growth
Sustained decrease in the total GDP of an economy.
What is the natural rate of unemployment
People who are naturally unemployed, that is they are not willing or able to do jobs. Eg: stuidents, disabled citizens, etc.
Define inflation
Sustained increase in the average price levels of goods and services in an economy over a particular period of time during which money’s value depreciates
What does ‘money depreciating’ mean
The purchasing power of money goes down. You cant buy the same quantity of goods and services for the same amount of money, instead need to sped more.
Why is inflation good for borrowers
why is it bad for savers
Savers: the value of their savings is going down.
Borrowers: They have to pay back the loan at money’s previous value not the present value. Would be easier to pay it back since the value of money has gone down.
Explain the cycle of inflation
Demand side push - high demand low supply
leads to prices increasing
workers want higher wages because of inflation
cost of production of busines rise
businesses increase price more
inflation rises even more
workers, etc, etc. cycle.
Define hyperinflation
Price levels increase more than 50% at a sustained basis
What is stagflation
Stagnation (low economic growth) + inflation = stagflation
unemployment and increased price levels.
Why is negative economic growth bad for the economy
If there is a sustained decrease in GDP, fewer people are employed.
Leads to a reduction in consumer spending
Firms lose sales and profit. May have to close if consumer demand continues to fall
Entrepreneurs will not invest in new firms and existing production may be moved to other countries where conditions are better
Governments would have to pay more for welfare benefits while getting less income from direct taxes - coorperate and income. Opportunity cost - roads, hospitals, etc.
May cause the govt to go into a budget defecit
Why is economic growth good
New business opportunities and jobs are created
Outplut, employment and incomes rise
Living standards will improve
Govt will get more income from taxes and can spend more on eg merit goods or training etc.
Why is high unemployment bad for the economy
Fewer people work - fewer goods and services are produced. Total output falls
Consumer spending will fall since fewer people will be paid to work - total income reduces. Businesses would lose revenue
Govt would have to spend more on welfare benefits. OC. Taxes on firms and working people would increase, which would reduce disposable income and would cause demand to fall even more.
People may deskill. The quality of labour of the economy would reduce and the PPC of the economy would shift inwards.
People’s mental health may take a toll after being unemployed for sustained periods of time. Reduces the quality of labour.
Why govts aim for full employment
More people earn regular incomes
output rises
consumer spending rises
govts can spend less on welfare benefits
What is real income
measure of purchasing power of money
