1.6

• Government Economic Objectives


  • Low inflation
  • Low unemployment
  • High economic growth
  • Surplus balance of payment
• Inflation


  Increase in the average price level of goods and services over time
• Inflation


  • Real incomes fall
  • Unemployment
  • Lower living standards
• Unemployment


  When people who are willing and able to work cannot find jobs
• Unemployment


  • Less GDP (total value of output of goods and services in a country in one year)
  • Unemployment benefit is a burden
• High economic growth


  • GDP increases
  • Standard of living will increase
  • Employment will increase
  • More income
  • Businesses will expand
• Surplus balance of payment

  The difference between a country's exports and imports
• Exports should always exceed imports
• Surplus balance of payment

  • Enough foreign currency
  • Exchange rate appreciation: the rise in value of a currency in terms of another currency
• Trade Cycle


  • Growth
  • Boom
  • Recession
  • Slump
• Trade Cycle 1. Growth


  1. GDP rises

  2. Unemployment falls

  3. People and businesses do very well
• Trade Cycle 2. Boom

  1. Too much spending

  2. Prices rise

  3. Shortage of workers

  4. Business costs will rise

  5. Rapid inflation
• Trade Cycle 2. Boom

  Leads to conditions which result in a recession
• Trade Cycle 3. Recession

  1. Too little spending

  2. GDP falls

  3. Less demand

  4. Unemployment
• Trade Cycle 4. Slump

  1. Long and drawn out recession

  2. Businesses close down

  3. Unemployment

  4. Prices fall
• Government Economic Policies


  • Fiscal Policy
  • Monetary Policy
  • Supply Side Policies
• Fiscal Policy


  Change by the government in tax rate or public spending
• Monetary Policy


  Change in the interest rate and money supply by the government
• Monetary Policy


  Effects net profits, investment, disposable income, consumer demand and exchange rate
• Supply Side Policies


  Used by government to improve efficient supply of goods and services in their country
• Supply Side Policies


  • Privatization
  • Improve training and education
  • More competition
• Types of Taxes


  • Direct Taxes
  • Indirect Taxes (e.g. VAT)
  • Import Tariffs and Quotas
• Direct Taxes


  • Tax on people's incomes which is usually progressive and reduces disposable income
  • Tax on profit made by businesses thus reducing their power to pay back investors
• Indirect Taxes (e.g. VAT)

  Tax on all the items purchased thus increasing price and reducing purchasing power/demand
• Import Tariffs and Quotas

  A tax or physical limit on imported products to make the country's own goods more popular but may end up resulting in higher costs and retaliation
• Government Controls on Business Activity

  • Production decisions
  • Responsibilities to employees
  • Responsibilities to consumers
  • Responsibilities to environment
  • Location decisions
• Some products are so dangerous that it would be unwise for a society to allow them to be made available to consumers
• In cases like these, the government restricts business activity for the sake of society as a whole
• Monopoly


  When one firm controls or dominates the market for a good or service
• Government tries to ensure that monopolies

  • do not fix high prices
  • do not prevent new firms from setting up
  • are encouraged to be efficient and introduce new products
  • don't make decisions against consumer interest
  • have managed mergers or takeovers
• Protecting Employees


  • Against Unfair Discrimination
  • Health & Safety
  • Against Unfair Dismissal
  • Wage Protection
• Against Unfair Discrimination


  • 1975 Sex Discrimination Act
  • 1976 Race Relations Act
  • 1994 Disabilities Act
  • Equal Opportunities Policy
• Health & Safety


  • No dangerous machinery
  • Safety equipment and clothing
  • Reasonable working temperatures
  • Hygienic conditions & washing facilities
  • No long shifts
  • Breaks given
• Managers must take ethical decisions which follow the moral code observed in the firm- setting a standard which prevents people from acting in an unfair or dangerous way
• Against Unfair Dismissal


  • Allowed to join a trade union
  • Right to being pregnant
  • Warnings given before being made redundant
  • Nothing done against contract of employment
  • The right to go to an industrial tribunal, which is a legal meeting which considers workers' complaints of unfair dismissal or discrimination at work
• Wage Protection


  • A contract of employment is a legal agreement between an employer and an employee listing the rights and responsibilities of the workers
  • The employers must strictly follow the contract and pay the employees accordingly
  • Legal minimum wage
• Location of Industry


  • Encourage businesses to set up and expand in areas of high unemployment
  • Discourage firms from locating in overcrowded areas
  • Protect natural scenery
  • Planning controls will be applied and planning permission will be given by a government to allow a business to build in a suitable area
  • Regional assistance will be provided to encourage factories to start in developmental areas which is a region with high unemployment
• Governments Helping Businesses


  • Assisting small firms
  • Regional Assistance
  • Encourage exports
• Assisting small firms


  • lower rates of profit tax
  • grants
  • cheap loans
  • providing advice and information
  • providing college courses/ other training
• Advantages of assisting small firms

  • small businesses are labor intensive- thus providing more jobs
  • they may operate in rural areas where unemployment would otherwise be high
  • they may grow into important businesses
  • they provide choice and variety for consumers
  • competition for larger firms- less chance of monopolization
  • flexible and adapt to meet needs of customer