1. Government Intervention

2. What do we need to know… What is government intervention Arguments for and against government invention Main economic objectives of government invention Three main types of policy.

3. What is government intervention? Government intervention aims to achieve the government's objectives by controlling and supporting businesses, passing legislation and taking action to control the economy. The government plays a very significant role in the economy in terms of: Spending around 40% of GDP on programmes such as health, education, defence, law, social security benefits etc. Raising a similar proportion of GDP by taxing income earners, consumers and company profits. Owning and controlling resources such as the NHS, state schools and public corporations such as the BBC and London Transport. Passing laws that control many aspects of business activity.

4. Arguments for and against government intervention Arguments against: Government intervention in some industries is expensive – resulting in tax rises. It creates an un-level playing field. Breeds inefficiency. If the government bails businesses out there is no incentive to lower costs etc. Might lead to governments in other countries giving even larger subsidies. Failing businesses caused by globalisation cannot be kept going for ever. Fewer opportunities for private investors. Financial government support does not always solve the businesses problems. Arguments for: Supporting new businesses or those in trouble can increase jobs opportunities and reduce the cost of unemployment. Support does not have to be long term. Firms can use financial support to invest in technology that makes them more efficient and competitive. The government can offer guarantees which encourages new industries to expand and will help attract investment.

5. The four economic objectives of the government: –Continuous and stable economic growth in order to raise the population's living standards. –Low inflation (CPI rate 2%) to maintain the value of money and reduce economic uncertainty. –Low unemployment to reduce the human and economic cost of people out of work. –Balance of payment equilibrium - over the long term, the value of imports should equal the value of exports.

6. How they achieve these objectives –Fiscal Policy –Monetary policy –Supply side policy

7. Fiscal Policy Fiscal policy is when the government changes tax rates or government spending to manage the economy. These changes are mainly announced in the budget each year by the Chancellor of the Exchequer. One of the uses of fiscal policy is to expand total demand in the economy during a downturn or to contract total demand during a boom. Examples of changes that could be made: –Raising or lowering of income tax rates. –Raising or lowering corporation tax. –Higher fuel duty –Higher alcohol duty –Increased spending –When the increase in government spending is greater than increases in taxes e.g. a budget deficit, this is called expansionary fiscal policy.

8. Monetary Policy Monetary policy is the use of interest rates by the bank of England to keep inflation below the 2% target. (For more detail see notes on interest rates)

9. Supply side Policy Supply side policies are measures taken by the government to improve the efficiency of the economy (e.g. the labour market) to allow for an increase in the total supply of goods and services. The overall aim of this policy is to increase the potential for economic growth. Examples of supply side policies: –Encourage new business start-ups. –Expand university courses to increase the proportion of the working population with specialists and flexible skills. –Allow increased immigration into the UK. –Encourage multinational investment into the UK.