Economic policy

• Economic policy is the term used to describe

  government actions that influence the economy
• Magic Square - Economic growth (GDP growth)

  • Low unemployment rate

  • Low inflation rate

  • Balance in trade
• Macro Conflicts - Unemployment and inflation, Economic growth and the balance of payments.
• The Phillips Curve shows that high inflation = low unemployment
• stagflation - high inflation, slow economic growth and high unemployment level
• How to increase growth potential?

  Natural resourses, labour force (quality matters), capital investments
• GDP

  Y = C + I + G + NX

  C = consumer spending

  I = investment

  G = government expenditure

  NX = net exports (EXPORT – IMPORT)
• GROSS NATIONAL PRODUCT (GNP) - GDP but excludes domestic income by foreign firms
• Left wing party - interfere into economy
• GDP is the monetary value of all finished goods and services made within a country during a specific period
• Nominal GDP values output using prices without inflation
• Real GDP values output using the prices of

  a base year.
• Base year is used for comparison of business activity
• GDP does not measure income distribution
• Real GDP per capita is the main indicator of

  the person’s standard of living
• Economic growth means an increase in real

  national income / national output
• Economic development means an improvement in

  the quality of life
• HDI - Human Development Index - measure of life expectancy, education and income
• Gini index - A measure inequality of income distribution.
• A Gini coefficient of zero expresses perfect equality
• Happy Planet Index - life satisfaction, life expectancy, and ecological footprint per capita
• Happiest country - Switzerland
• INDEX OF ECONOMIC FREEDOM - based on trade freedom, business freedom and investment freedom
• Interest rates are the cost of borrowing and the reward for saving money.
• Monetary policy - the actions of a central bank that determine growth of the money, which in

  turn affects interest rates.
• Expansionary - lowers interest rates, high inflation, money savings unfavorable
• Contractionary - by increasing interest rates aims to reduce inflation
• Goals of monetary policy - promote "stable" prices, "max" GDP and employment
• Tools to Implement Monetary Policy

  • Change the interest rates

  • Open market operations

  • The reserve requirements
• Quantitative Easing -buying securities to increase money and lower interest rates
• To adopt the euro: The Maastricht Treaty
• Monetary policy: The European Central Bank

  Fiscal policy: The Stability and Growth pact
• 20 states in Euro Area
• with Derogation - Poland, but all countries which joined EU after

  Maastricht Treaty need to join Euro

  area (but without deadline)
• With opt-out clause - Denmark, because they were in EU before Maastricht Treaty
• Сonvergence criteria - Price stability,National budget deficit below 3 %

  of GDP, inflation of no more than 1.5% points and Long-term interest rates no more than 2% above the average rate of the three EU member states with the lowest

  inflation over the previous year,:
• Policy mix is the combination of fiscal and monetary policy to manage the economy
• Fiscal policy - The government's use of taxation and spendings
• Active fiscal policy: Government spending on goods and services to increase demand on economy
• Instruments of fiscal policy: Tax system and budget