Chapter 39: Government Economic Policy
What is it?
Government economic policy is all the ways in which the government is trying to have an impact on the economy.
Aims to create a stable economy which promotes:
Full employment
Low inflation
Increased economic growth
Social and income equality
Industrial and regional development
A policy is a set of guidelines or rules to help in decision making or to achieve a reasonable outcome. Its purpose is to put in place a procedure or protocol.
Fiscal Policy:
Monetary Policy:
Industrial Policy:
How the government sets taxation levels and distributes wealth in the economy.
How the government controls the supply of money available in the economy by setting interest rates and controlling inflation.
How the government encourages development and growth in the three sectors of the economy: primary, secondary and tertiary, both indigenous and FDI businesses.
Direct intervention policy:
How the government sets up state companies to provide goods and services that the private sector doesn't supply.
A cost-benefit analysis
What is it?
When the potential benefits of a policy are balanced against its associated costs. The benefits should outweigh its costs, otherwise it needs to be changed or abandoned.
Steps:
1. What is the economic issue? What caused this issue? Is there a policy put in place? Do other countries have a similar policy that works/doesn't work? (Research the policy.)
2. What are the benefits? The costs?
3. What is the overall impact of the policy? (Balance the costs against the benefits) Is the policy fair or does one half of the population benefit more than the other?
4. Is the policy sustainable?
5. Evaluation: Do you agree with it? If not, how would you approach this problem?