Objectives of govt economic policy

Question 1

Obj 1: Economic growth

Why aim for economic growth?

Answer 1

Govt try to maximise sustainable economic growth to increase living standards and help create employment.

Question 2

Obj 2: Low inflation

What is the govts current inflation target?

What do they want to avoid?

Answer 2

2% (+ or - 1)

Deflation and high inflation

Question 3

Obj 3: Low unemployment

What do govts want?

Answer 3

Most aim for full employment or to minimise the rate of unemployment.

Question 4

Obj 4: Satisfactory current account/ balance of payments

What is a concern of govts and how do they avoid this?

Answer 4

A concern is having a large current account deficit, therefore govts wish to have a low deficit/surplus.

Large current account deficit (e.g. weak export growth, finance deficit)

Question 5

Obj 5: Low govt borrowing

What do govts usually do?

Answer 5

Commit to fiscal targets for both annual borrowing and total debt (public sector net debt)

Question 6

Obj 6: Stable exchange rate

What could a rapid depreciation in exchange rate do?

Answer 6

May cause inflationary pressures and instability, therefore, govts prefer stable exchange rate.