4.1 + 4.2 Roles of Govt

Question 1

2 main roles of the govt

Answer 1

producer
employer

Question 2

what are the roles of a govt as a producer

Answer 2

Supply merit goods
Supply public goods
control natural monopolies
welfare services

Question 3

3 types of public sector employment opportunities

Answer 3

national, regional, local govt. authorities and their administrative offices

Govt agencies - delivery of public services

State-owned enterprises

Question 4

What are the macroeconomic objectives of the government

Answer 4

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

Question 5

What is economic growth

Answer 5

Economic growth refers to an increase in the gross domestic product (GDP)over a period of time.

Question 6

What are the conflicting aims

Answer 6

Full Employment v/s Inflation
Economic Growth & Full Employment v/s BoP Stability
Economic Growth v/s Full Employment
Income retribution

Question 7

Explain Full employment v/s price staibility

Answer 7

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)

Question 8

Explain Economic Growth & Full Employment v/s BoP Stability

Answer 8

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.

Question 9

Explain Economic growth vs Full employment

Answer 9

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.

Question 10

Conflict of redistribution of income

Answer 10

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.

Question 11

Definition of unemployment

Answer 11

People who are willing and able to work but are unable to find a job.

Question 12

What is GDP
full form

Answer 12

Gross Domestic Product: Total output of goods and services in an economy over a period of time

Question 13

Define negative economic growth

Answer 13

Sustained decrease in the total GDP of an economy.

Question 14

What is the natural rate of unemployment

Answer 14

People who are naturally unemployed, that is they are not willing or able to do jobs. Eg: stuidents, disabled citizens, etc.

Question 15

Define inflation

Answer 15

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

Question 16

What does ‘money depreciating’ mean

Answer 16

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.

Question 17

Why is inflation good for borrowers

why is it bad for savers

Answer 17

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.

Question 18

Explain the cycle of inflation

Answer 18

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.

Question 19

Define hyperinflation

Answer 19

Price levels increase more than 50% at a sustained basis

Question 20

What is stagflation

Answer 20

Stagnation (low economic growth) + inflation = stagflation

unemployment and increased price levels.

Question 21

Why is negative economic growth bad for the economy

Answer 21

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

Question 22

Why is economic growth good

Answer 22

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.

Question 23

Why is high unemployment bad for the economy

Answer 23

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.

Question 24

Why govts aim for full employment

Answer 24

More people earn regular incomes
output rises
consumer spending rises
govts can spend less on welfare benefits

Question 25

What is real income

Answer 25

measure of purchasing power of money