Section C: Part 2 Government policies to deal with the macroeconomic objectives Chapter 37: Economic policy and policy instruments

Group task: Gangnamland has the following characteristics; 3% unemployment 8% inflation Current account deficit of $US 10 billion economic growth 6% GDP 250 billion air pollution & congestion problems Your group are the financial advisors to government. What steps should the government take to improve things in the country? Make notes & report back in 10 minutes

Review: What are the macroeconomic objectives? What do governments want to happen with these macroeconomic objectives? How could they achieve these objectives?

The government controls these objectives by using policy instruments; taxation rates government expenditure interest rates

Govts use policy instruments together in its Economic Policy 1.Fiscal policy: ↑↓ taxation &/or government spending → ↑↓ aggregate demand 2.Monetary policy: ↑↓ interest rates → ↑↓ agg. demand 3.Supply side policies: ↑ productive capacity (supply) in the labour, capital and goods markets These will be looked at in detail in the following chapters * Try Getting started, Q1 & Exam practice