OBJECTIVES OF GOVERNMENT POLICY

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Presentation transcript:

OBJECTIVES OF GOVERNMENT POLICY REVIEW 4.1 OBJECTIVES OF GOVERNMENT POLICY

1. PRICE STABILITY (CONTROL OF INFLATION) 2. FULL EMPLOYMENT (NAIRU) 3. ECONOMIC GROWTH 4. BALANCE OF PAYMENTS (EXPORTS & IMPORTS) 1. Government target for price inflations is 2% 2. Non Accelerated Inflation Rate of Unemployment 3. An increase in real terms of GDP 4. Exports= Imports over a course of time

Instruments to achieve these policies 1. Fiscal Policy – How a government raises money and spends it. 2. Interest Rate Policy – the base rate is set by the MPC (monetary policy committee) of the BOE. Base rate is 0.5% It is the rate at which the BOE will lend to commercial banks 3. Supply side polices

REVIEW 4.2 ECONOMIC GROWTH

ECONOMIC GROWTH – Growth in output of the economy over time- a growth of real GDP over time. Gross domestic product – the total value of goods and services produced in the country in a year (GDP) GDP per capita – GDP divided by the total population, therefore GDP per head.

CAUSES OF ECONOMIC GROWTH Investments – Spending of capital goods (machinery) Changes in technology A larger workforce Education and training Natural resources Government policies

Production Possibility Curve Economic growth is the outwards movement of the production possibility curve.