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Section 8 - Governmnet objectives - Coggle Diagram
Section 8 - Governmnet objectives
Income distriubtion
Income distriubtion can increase equality and improve welfare and reduce poverty
High earners tend to save while low earners tend to spend most of their income, so income redistribution can increase consumer spending
Problems
Removing the reward of higher wages as an incentive for hard work mean people won't work as hard
Spending by people with high incomes creates jobs for others
Governments can increase tax to reduce the net income of high earners
Enviroment
pollution
Governments need to identify environmental damage
Financial penalties provide an incentive to decrease damages
Non-Market policies - outright bans or limit on practices
Market policies - influence the cost of polluting by putting a restriction of the amount of pollution a firm can produce
Depletion of finite resources
Encourage the development of renewable resources
Provide financial incentives to firms to develop or use renewable energy
Inflation/ unemployment
Low unemployment, economy approaches full capacity and demand for workers increases
Could lead to increases wages which increase costs, which can cause cost-push inflation
Low unemployment may cause more spending and confidence increases, this may cause demand-pull inflation
Reducing unemployment makes it hard to keep inflation low
Short run philips curve
Trade off between low inflation and unemployment
To reduce unemployment, you need to increase AD, but this will increase inflation
Economic growth/ environment
New factories lead to increased production, but also more air/water pollution
Economic growth leads to greater usage of resources
Ecosystems might be damaged/ destroyed by construction of new factories
Economic growth can be a strain on the environment
Economic growth/ inflation
Rapidly growing economy can cause large increase in prices
Attemps to keep low inflation can restrict growth - High interest rates can reduce inflation by encouraging saving
Inflation/ BOP
Inflation is low, prices are rising slowly - exports increase and imports decrease - reduce BOP deficit
Low inflation is obtained by high interest rates, which increases foreign investment, and increase the value of the currency
Exports are more expensive and imports are cheaper - reduction in surplus, and increased BOP surplus
Economic growth/ Inequality
Economic growth leads to higher demand for high skilled workers and a lower demand for low skilled workers
Governments can increase tax revenue to decrease inequality by increasing welfare payments and using progressive taxes
Increasing taxes/ welfare payments may disincentivise individuals to earn more money, which damages future economic growth
Supply-side policies that help people get back to work and reduce occupational/geographic mobility would encourage growth, while reducing the welfare budget
Supply side policies
Frictional unemployment
Be reduced by policies that encourage people to find jobs
Reducing benefits will increase the labour supply
Income tax cuts incentivise workets to finda job, and encourages them to work longer hours
Increased information helps workers find the right job
Structural unemployment
Reduced by policies which tackle geographical and occupational immobility
Investing in training scemes can improve worker's skills
Giving subsidies to move to different area or by building affordable housing can make people move
Bring jobs to area with high unemployment provide benefits to firms that locate in certain areas