GOVERNMENT ECONOMIC OBJECTIVES AND POLICIES. Textbook, Chapter 26 [pg ]

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1 GOVERNMENT ECONOMIC OBJECTIVES AND POLICIES Textbook, Chapter 26 [pg ] Name: Class:

2 Learning outcomes: Identify government economic objectives. Explain the main stages of the business cycle. Explain the tax, spending and interest rate changes that government can make. GOVERNMENT ECONOMIC OBJECTIVES 1) Low 2) Low 3) Economic 4) Balance of Definitions to learn: Inflation Unemployment Economic growth Balance of payment 2

3 Real income Gross Domestic Product Inflation What are the problems when high inflation in a country? 1) People real income will f. 2) Prices of goods produced in the country will be h. 3) Businesses will not e. 4) Standard of living will f. Low levels of unemployment What are the problems when low level of unemployment in a country? 1) Total output in the country will be l. 2) Government of that country need to pay financial benefits to the une people. 3

4 Economic Growth What will happen to a country when the GDP is falling? 1) Country s output is f. 2) Standard of living will d. 3) Business will not e. Economic Growth Draw the Business Cycle: 4

5 The Business Cycle has four main stages, as shown on the diagram: Stages Characteristics Balance of Payment Balance of payments deficit happens when > Problems when a country A has balance of payment deficit: The country A could run out of other countries currencies, it may have to borrow from abroad. The country A s currency against other countries The exchange rate will fall (Exchange Rate Depreciation) Balance of payments surplus happens when > 5

6 Definitions to learn: Recession Exports Imports Exchange rate Exchange rate depreciation Exchange rate appreciation GOVERNMENT ECONOMIC POLICIES 1) 2) 3) 6

7 Fiscal Policy Definition:. Where do government raise this money from? Direct taxes Indirect taxes Definitions to learn: Direct taxes Indirect taxes Income tax It is a tax on people s incomes. The higher a person s income the g will be amount of tax to pay the g. In many counrty, income tax is progressive. Definition to learn: Disposable income 7

8 Profit tax or corporation tax What are the effects towards the company when the government imposing low/high profit tax? Low profit tax High profit tax Indirect tax What are the effects by an increase in the VAT towards business and consumer? Business Consumer Import tariffs and quotas Definitions to learn: Import tariff Import quota 8

9 Retaliation What are the effects when government imposing import tariff towards home country? 1) 2) Monetary policy and interest rates Monetary policy: Interest rate: What impact would higher interest rate imposed by government have on businesses in a country? 9

10 Supply side policies Supply side policies: Examples: Privatisation. Improve training and education. Increase competition in all industries. 10

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