Government Objectives Flashcards
1
Q
Name 2 Pros of Economic Growth
A
- Higher Disposable Income per Capita, meaning standards of living rise
- This leads to higher profits for firms, higher consumption and higher employment within an economy
- There is a fiscal dividends for Governments, as people are in jobs, reducing benefits and increasing income tax
2
Q
Name 2 Cons of Economic Growth
A
- Demand-Pull inflation, erodes purchasing power and decreases standard of living
- Income Inequality if growth stems from one dominant sector, capital intensive or urban areas (differences)
- Environmental costs through air pollution and deforestation
- Current Account Deficit, more people can import, increasing the MPM, and thus imports
3
Q
What are some of the Evaluation points of Economic Growth?
A
- Jobs created by growth are sometimes lower income and lower quality jobs
- Is the Growth sustainable and balanced?
- Does everyone benefit from Growth?
- Private Sector Role to reinvest
- Government role to have sufficient SSPs to reduce Inflation/Income Inequality/Environmental Costs
- Issues with GDP and GDP per Capita as a measurement
4
Q
Name 2 Pros of Inflation
A
- Workers can bargain for higher wages, aiding morale and productivity
- Consumption will occur naturally when inflation is stable
- Firms are encouraged to increase output due to thought of higher revenue
- Reduces the real value of debt, which makes it easier to service the debt
- Fiscal Drag and other indirect taxes can increase Government Finances.
- Inflation can reduce the impact of a recession on unemployment. It is costly to let go of skilled and productive labour, thus firms can raise prices +/- x , and then give wokers smaller pay rises. Revenue > Costs
5
Q
Name 2 Cons of Inflation
A
- Lower Purchasing Power for households and workers, perhaps increasing poverty
- Eroding Savings, harmful for pensioners and those saving towards a goal
- Lower international competitiveness of exports, leading to reducing export-led sectors and worsening of the Current Account
- Wage/Price Spirals can increase inflation (BOTH Demand-Pull and Cost-Push)
- Fiscal Drag mean that workers pay more taxes due to Frozen Tax Bands
- ‘Inflationary Noise’, volatility means Signalling Function in a market reduces
6
Q
What are some of the Evaluation points of Inflation?
A
- ‘Shoe-Leather Costs’, the Opportunity Cost of searching for banks giving you the best interest rates
- ‘Menu Costs’, the Physical Cost of firms changing prices on menus and such
- The rate of Inflation
- The Cause of Inflation (expected or unexpected)
- How long the Inflation is lasting for?
- Is the inflation stable?
7
Q
Name 2 Pros of Unemployment
A
- Labour becomes more mobile, as there are more vacancies
- Firms can choose from a greater pool of workers
- Workers can choose jobs that are best suited to them, improving the allocation of resources within an economy
8
Q
Name 2 Cons of Unemployment
A
- Lost output as the economy is working sub-capacity, productive capacity reduced
- There is a deterioration of Government Finances, increased Spending on Unemployment Benefits and Lower Income Tax Revenue due to less workers
- Potential of Hysteresis if the Unemployment is Long Term (1yr+), depreciation of Human Capital and reduction of the Labour Force
- Social Costs increases, Divorce Rates and Crime Rate
- Reduces consumption, worsening AD and International Trade
9
Q
What are some of the Evaluation points of Unemployment?
A
- Level of Unemployment
- The Type of Unemployment, impacting the duration of unemployment and how to target it
- The Level of Unemployment Benefits, if Labour can be easily substituted for benefits, then it will be
- Phillips-Curve
10
Q
Name 2 Pros of a Current Account Deficit
A
- Usually Indicative of high Growth and high AD
- Improved quality of goods due to specialisation benefits and comparative advantages
11
Q
Name 2 Cons of a Current Account Deficit
A
- High dependence on the MPM and the confidence within an economy, causing targeted policies more challenging to implement
- Increases the debt of a Government, placing a burden upon a nation’s future generations to pay it back
- Underlying Productivity issues if there is a dependency on imports
12
Q
What are some of the Evaluation points of a Current Account Deficit?
A
- The Level of the Deficit
- UK evaluation, has large levels deficit of hampered them at all?
- The MPM and the PED of exports and imports (Marshall-Lerner Condition)
- Type of Deficit
13
Q
Name 2 Pros of a Budget Deficit
A
- Helpful to reduce the impact of a recession (2008)
- Investment into infrastructure can lead to increased Productive Capacity of a Nation
- The Multiplier Effect can increase a positive fiscal stimulus, which increases economic growth
- More Economic Growth (See Economic Growth)
- Redistribution of Income, reducing income inequality
- Incentives deriving from lower taxes
14
Q
Name 2 Cons of a Budget Deficit
A
- Government Failure due to risky and ineffective spending can occur, creating x-inefficiencies
- Overheating of an economy due to Cost-Push and Demand-Pull inflation
- Increases the debt of a Government, placing a burden upon a nation’s future generations to pay it back
- Conflict between other big economic objectives
15
Q
What are some of the Evaluation points of a Budget Deficit?
A
- ‘Crowding-Out’ or ‘Crowding-In’
- Keynesian Vs Classical arguments (Stages of Cycle)
- What is the Government spending used to fund
- The Size of the Multiplier
- The type of Budget Deficit
- State of the Wider economy
