Chapter 5 Economic Policy

 People’s concerns: 1.Prosperity & Economic Growth (how well is economy doing) 2.Distribution of Economic benefits (how wealth spread) Economy, People & Government

 For everything the state wants to accomplish (education, defense, etc), it must have a strong economy  Political economy: How the state and economy interact Economy & the State

 Economic growth: Single thing by which governments are most judged  Varies greatly from state to state  Economic growth decisions require agility Economic Growth

 Often governments will leave economy to free markets  Often people in government use rents  Rents: transfer of money that do not relate to production (different than apt. rent)  Example: Tax money to build a road Economic Growth: Rents

 1950s-1970s, many less affluent states used import- substitution industrialization  That is, to transform economies into advanced industrial economies, states encouraged establishment of factories  Set high tariffs (taxes) to discuss imports  Often failed—factory owners took advantage with extremely high prices Economic Growth: Import-Substitution Industrialization

 Inflation: a time in which most prices are rising at the same time & the value of the dollar is thereby declining too  Can be caused/influenced by: 1.Deficit spending 2.Shortage of goods 3.Monopolies Economic Performance: Inflation

 Unemployment: Not enough jobs are available to those who want them  Hurts morale and is inefficient  Key to government control is to maintain a balance Economic Performance: Unemployment

 If government wants to create greater equality: 1.Create special subsidies and programs for poor 2.Create system of progressive taxation (greater taxes for wealthier) Distribution & Equality within Economy

 Central bank: a bank set up by a government to help handle its transactions; to coordinate policies of other banks and to control interest rates  Every modern state has one  Example: Federal Reserve Bank in United States Central Banks

 Degree of corruption in a government can directly influence the success of an economy (Example: Saddam Hussein took money for his family from Iraq)  Globalization of business has meant businesses can exist in many different countries which can directly influence policy Influences on Economy

 Subfield of political science that focuses solely on study on relationship between politics and economy  Rational Choice Model Political Economy