The Role of the Government

The Role of the Government John Maynard Keynes To intervene in the working of the economy to achieve a stable level of growth Milton Friedman Government involvement in economic affairs should be minimal and the interaction of total demand and supply should determine economic issues

Instruments of Government Economic Policy MONETARY POLICY FISCAL POLICY ECONOMIC PLANNING LEGISLATION- PRICE & INCOME POLICIES EXCHANGE RATE POLICY MARKET INTERVENTION

FISCAL POLICY Policy on expenditure and taxation The most powerful tool the government has EXPANSIONARY Government Plans for budget deficit. Inflationary Decreased taxes Increase in Government expenditure Encourage Investment Invest in Infrastructural projects DEFLATORY Slow down economy Increase in Taxes Decrease in Government Expenditure Redistribute Wealth Fund Vital Services

Irish Spending and Revenue

Money Supply- Sourced by borrowing and earning MONETARY POLICY Carried out by the Central Bank on behalf of the ECB Money supply, interest rates and credit creation Money Supply- Sourced by borrowing and earning Monetary Policy- concerned with borrowing and the availability of credit ECB implements Monetary Policy by: Controlling Interest Rates- Cost of Borrowing or Cost of Borrowing Cost of Borrowing= interest rate

ECONOMIC PLANNING Irish Business and Employer’s Confederation (IBEC) Consultations with social partners to achieve realistic economic targets Irish Business and Employer’s Confederation (IBEC) + Irish Congress of Trade Unions (ICTU) +Government = Realistic Economic Targets over an agreed period of time

EXCHANGE RATE POLICY The devaluing or re-valuing our currency in terms of other currencies Controlled by the ECB The price of one currency in terms of another currency

MARKET INTERNVENTION Market Intervention is needed to provide socially desired but unprofitable services e.g. The Gardaí The Government becomes the competitor (if there are there are other providers)/the sole operator of an industry e.g. Gardaí (non- profitable), Bus Éireann (gov. is the competitor), Iarnród Eireann (gov. is the sole operator)

LEGISLATION- PRICE AND INCOME POLICIES Used to: -Set a minimum wage -Protect the rights of the consumers -Control prices -Regulate how industries work MONOPOLY - There’s only one firm in this type of the industry .eg. Iarnród Eireann OLIGOPOLY -There are only a very small number of very large firms in this industry e.g. petrol firms- Shell

GOVERNMENT ECONOMIC AIMS Full Employment (Fiscal Policy, Monetary Policy, Legislation, Exchange rate policy, Market intervention.) Regional Development (Fiscal policy, Economic planning) Just Social Policy (Fiscal policy) Provision of Infrastucture (Fiscal policy, market intervention) GOVERNMENT ECONOMIC AIMS Achieve Economic Growth (Economic planning) Control Inflation (Fiscal Policy, Monetary policy, Legislation, Economic planning.) Equilibrium on Balance of Payments (B.O.P.) (Fiscal policy, Monetary policy, Exchange rate policy.) Control Gov. Finances (Fiscal policy)

If full employment is top priority, the gov. needs to: CONFLICTS BETWEEN GOV. AIMS 1.FULL EMPLOYMENT vs CONTROL OF INFLATION 2.ECONOMIC GROWTH vs JUST SOCIAL POLICY If full employment is top priority, the gov. needs to: expenditure (eg FAS) Interest Rates (leads to investment If Contolling inflation is the priority, the gov. needs to: interest rates (less money for consumption) Direct Taxes (PAYE) Expenditure If Just Social Policy is top priority, the gov. needs to: tax on high earners Wealthy people may leave Ireland as a result, stunting economic growth If Econmic Growth is top priority: Gov. will be reluctant to take from the wealthy

4.PROV. OF INFRASTRUCTURE vs CONTROL OF GOVERNMENT FINANCES 3. FULL EMPLOYMENT vs B.O.P If providing new Infrastructure is top priority: Gov. invests in an area = little or no direct or immediate return = National debt If Full Employment is top priority Gov. will introduce measures to increase employment. This means people have more disposable incomes. More incomes= demand for imports =negative effect on B.O.P. as money goes out of the economy. 5.CONTROL OF GOV. FINANCES vs FULL EMPLOMENT If controlling gov. finances is top priority: Grants, subsidies and other Financial incentives won’t be given to employers to boost employment

National Development Plan Economic Infrastructure Transport Energy Environmental Services Communications & Broadband Programme 5. Social Inclusion Invest in Child’s Programmes Invest in Working Age Education Support systems Invest in helping the elderly live independently Invest in programmes for those with a disability 4. Social Infrastructure Fair & equitable redistribution of wealth Investment in housing Investment in Health Sector Investment in Prison infrastructure 2. Enterprise, Science & Innovation. Attract high foreign direct investment Develop our indigenous companies Modernise Ag. Sector National Development Plan (2007- 2013) 3. Human Capital Ensure access for everybody to the highest standards of education Meet labour skills required for the future Develop 3rd level education sector

b)i) State and explain what you consider to be the three most important economic aims of the Irish Government. 3 at 5 marks each 1. Achieve Full Employment The Government should pursue policies which will: boost our exports. improve our competitiveness. and so help create jobs in Ireland 2. Achieve Modern Economic Growth The Government should: try to manage current economic downturn in economic activity ensure that we return to a position of some economic growth. -Appropriate fiscal policy may help towards achieving this 2010 Q6(b)(i) Banking, econ0mic aims and monetarism

-The National Development Plans aim to do this. The government should: EXAM ANS. CONT’D 4. Promote Balanced Regional Development -The National Development Plans aim to do this. The government should: develop broadband, ensure the continuity of regional airports develop educational opportunities in the regions so as to stimulate economic activity encourage economic growth 3. Control Government Finances The Gov. should: reduce spending . widen the tax base so that taxation revenues will increase. -These will in turn reduce borrowing and help reduce national debt. 5. Improve Infrastructure Continued development of road infrastructure, provision of improved public transport, development of airports etc, is essential to ensure that our standard of living is maintained

Control of national finances vs full employment Balanced regional development vs maintaining state services Distribution of wealth vs broadening tax base Full employment vs price stability Outline two examples of possible conflicts between economic aims/objectives. Control of national finances vs economic growth Stability in Banking sector vs control in government finances. 2 at 5 marks each 2010 Q6(b)(ii) Banking, economic aims and monetarism

THANKS FOR WATCHING By Hannah Ortega- McCormack