Role Of The Government

Question 1

What are the government objectives (6)

Answer 1

Economic growth
Price stability
Full employment 
Trade
Redistribution of income
Sustainable environment

Question 2

Explain the objective economic growth

Answer 2

High and stable

Important for raising living standards

Question 3

Explain the objective price stability

Answer 3

Low rate of inflation

High inflation creates uncertainty in an economy

Question 4

Explain the objective full employment

Answer 4

Low unemployment (4%)
Below full unemployment and wages start to rise
Unemployment is temporary

Question 5

Explain the objective of trade

Answer 5

A balanced trade between exports and imports

A large deficit means income leaving the economy

Question 6

Explain the objective redistribution of income

Answer 6

Reduces poverty

Costs the government to support poor households with welfare costs

Question 7

Explain the objective sustainable environment

Answer 7

Pollution and congestion caused a depletion of resources

Question 8

Which other objectives does higher economic growth conflict with (3)

Answer 8

Increases inequality of income
Damages the environment
Increases inflation and uncertainty

Question 9

Which other objective does higher employment conflict with

Answer 9

Worsen the balance of payments as more people have jobs, higher income, but more imports

Question 10

Government policies (3)

Answer 10

Monetary
Fiscal
Supply side

Question 11

What is a monetary policy

Answer 11

Bank of England sets interest rates, exchange rate and money supply

Question 12

What is a fiscal policy

Answer 12

Government spends on achieving government objectives with tax revenue

Question 13

What is a supply side policy

Answer 13

Any policy which helps to increase the economy’s ability to produce goods and services

Question 14

What is aggregate demand

Answer 14

Total demand for all goods and services in our economy

Question 15

Equation for aggregate demand

Answer 15

C+I+G+X-M

Question 16

C

Answer 16

Consumptions of households

Question 17

I

Answer 17

Investment of firms

Question 18

G

Answer 18

Government spenditure of government

Question 19

What is aggregate supply

What would the government encourage firms to do

Answer 19

Total supply of goods and services in our economy

Encourage to supply more goods and services

Question 20

Why might a government produce goods or services (4)

Answer 20

Public goods
Merit goods
Natural monopolies
Saving firms from thingy

Question 21

Why are public goods produced by the government

Answer 21

Private sector unwilling to provide due to free rider problem
E.g. Defence law and order infrastructure

Question 22

Why are merit goods produced by the government

Answer 22

Under provided by the private sector and generates positive externalities

Question 23

Why are natural monopolies provided by the government

Answer 23

Prevent consumers from getting exploited

Question 24

Why might the government privatise a good or service (2)

Answer 24

More efficient

Raises revenue

Question 25

What is inflation

Answer 25

The persistent increase in general level of prices in an economy
It is how the government defines price stability

Question 26

How is inflation measured

Answer 26

Annual % increase in the CPI

Question 27

Inflation means…

Answer 27

Value of money falls

Question 28

Why is it important to know what the inflation rate is (3)

Answer 28

So the government can control it
Firms/ workers can negotiate wages
Government can adjust pensions, welfare

Question 29

How do we measure inflation

Answer 29

Create a basket of 650 goods/ services consumers by an “average” household
Collect all price information and set a base year (=100)
Give weights to each good/ service in household budget
Calculate the index and compare with year