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Section 8 - Government objectives - Coggle Diagram
Section 8 - Government objectives
Create long run economic growth
Result of supply side factors which increase the productive potential of the economy
Increasing the quality/ quantity of the FOPs
Investing in more modern machinery
Raising agricultural output
Increased spending on education/ training improves human capital (economic value of a worker's experience and skills)
Encouraging immigration increases workforce
Happiness
Tries to measure any factor associated with increased levels of subjective welbeing
Governments can try to device policies that achieve better outcomes if they know what makes people happy
Easterlin paradox
Increases in GDP don't always lead to increases in happiness levels
When incomes don't allow basic needs to be met, increasing GDP leads to greater happiness
People in rich countries don't tend to be much happied than those in poorer countries
Relative income is more important, being rich won't make u happy if everyone elase is rich too
Sustainable growth
Making sure the economy keeps growing, without causing problems for future generations
Factors
Ability to increase output every year
Ability to find continuous supply of raw materials by developing renewable resources
Ability to redue negative externalities by creating new technologies
UK's macroeconomic performance
2000-2007 continuous economic growth
2008 - recession which lasted several months
During the recovery, economy went through short bursts followed by slow-downs
Between 2000-2015, inflation remained between 0.5-3%
UK unemploymen remained low between 2000-2008
Between 2008-2011, unemployment rapidly rose
UK had a current accounts deficit for the whole period between 1984-2014
Balance of payments
Current account deficit
High spending
Economic growth leadsto more imports
High income elasticity of demand leads to a greater increase in imports
Competitveness
Costs of production rise faster than incompetitive countries, exports fall and imports rise
Structual problems make domestic products more expensive
Rise in currency makes exports more expensive and imports cheaper
External shocks
Increase in the price of raw materials leads to a country paying more
Trade barriers can lead to a reduction in exports
Current account surplus
Recession - products struggle to seel products domesically, but international trade is easier
Low domestic currency means exports are cheaper and imports are exensive
Consequences
Deficit
Uncompetitive economy
Fall in the value of currency, higher import prices
Domestic job loss
Surplus
Economic stagnation, low domestic demand leading to high unemployment
Overreliance on exports
Undervalued currency, price of imported materials for production will rise causing a rise in price level
Government intervention
Deficit
Devalue the currency to make exports cheaper
Fiscal/ monetary policy to reduce spending
Restrictions on imports
Surplus
Raise the value of the currency, reduce the demand for exports
Can cause a reduction in output and a rise in unemployment
Global impacts
Supply side policy to correct deficits may increase world trade
Restrictions on imports can lead to trade wars
International economies
Economies are dependent on eachother, cricis in one can cause problems in others
If on country enters a recession, countries that trade with it will face problems