Download macroeconomic objectives of the government

MACROECONOMIC OBJECTIVES OF
THE GOVERNMENT
Learning Objectives


Identify the four major macroeconomic
objectives;
Explain how the government can control the
economy.
Government Policy Tools to Control the
Economy



Fiscal Policy
Monetary Policy (Through the Central Bank)
Direct Policy
Fiscal Policy

Fiscal policy involves the Government
changing the levels of Taxation and Govt
Spending in order to influence Aggregate
Demand (AD) and therefore the level of
economic activity.
Purpose of Fiscal Policy



Reduce the rate of inflation.
Stimulate economic growth in a period of a
recession.
Basically, fiscal policy aims to stabilise
economic growth, avoiding the boom and
bust economic cycle.
Fiscal Stance

Expansionary (or
loose) Fiscal Policy.



This involves increasing
AD.
Therefore the govt will
increase spending (G)
and cut taxes. Lower
taxes will increase
consumers spending
because they have more
disposable income(C).
This will worsen the govt
budget deficit.

Deflationary (or tight)
Fiscal Policy



This involves decreasing
AD.
Therefore the govt will
cut govt spending (G).
And or increase taxes.
Higher taxes will reduce
consumer spending (C).
This will lead to an
improvement in the
government budget
deficit.
Group Activity – Research the
following:

For a named Caribbean country, discuss
TWO negative effects of a Government
budget deficit on the economy.
Monetary Policy


Controlling the economy by changing the
level of money supply.
Implemented through the Central Bank.
Direct Policy




Refers to all the ways in which the
government can directly control the economy
to help achieve its macroeconomic
objectives.
Fiscal and monetary policy are indirect.
An eg. of direct policy is if the government
wants to reduce unemployment then it would
hire unemployed people (URP).
If it wishes to directly control inflation then it
would set a price ceiling.
Evaluation

Which of the following is not a macro
economic objective of government:
a)
b)
c)
d)
Economics growth
Full employment
Price stability
Balanced budgets
Q2

The use of taxes and government spending
to influence the level of income in an
economy, or to stabilise the economy is
called
a)
b)
c)
d)
Economic policy
Fiscal policy
Monetary policy
Public policy
Q3

A budget deficit is likely to
a)
b)
c)
d)
Have a contractionary effect on the economy
Have an expansionary effect on the economy
Have a neutral effect on the economy
Have a contractionary effect on the government
Final Evaluation

An
economy
records
a
rise
in
unemployment and a fall in business
investment.
Explain how TWO fiscal
policies can be used to address these
conditions. (6 marks)