Chapter 5 POLICY CHOICES
Chapter 5 POLICY CHOICES
5.1 GOVERNMENT AND ECONOMIC MANAGEMENT Policy the deliberate use of a government s economic and legal power to try to achieve specified or understood outcomes E.G. laws, institutions, day-to-day management of government services 冷 Microeconomic policy targets particular industries or products or markets e.g. government provides a subsidy to a particular industry in trouble 冷 Macroeconomic policy thing that apply across all states and industries e.g. income and business tax rates the overall rate of unemployment in the economy, growth in GDP
5.1 GOVERNMENT AND ECONOMIC MANAGEMENT ❖ Policy ▪ the deliberate use of a government’s economic and legal power to try to achieve specified or understood outcomes. ▪ E.G. laws, institutions, day-to-day management of government services ❖ Microeconomic policy ▪ targets particular industries or products or markets. ▪ e.g. government provides a subsidy to a particular industry in trouble ❖ Macroeconomic policy ▪ thing that apply across all states and industries. ▪ e.g. income and business tax rates, the overall rate of unemployment in the economy, growth in GDP
5.2 OBJECTIVES OF GOVERNMENT POLICY 1. Economic growth and efficiency 2. Stability of prices 3. High employment and low unemployment 4. Healthy trade and exchange rate levels 5. Protecting the environment 6. Fairness and helping the disadvantaged
5.2 OBJECTIVES OF GOVERNMENT POLICY 1. Economic growth and efficiency 2. Stability of prices 3. High employment and low unemployment 4. Healthy trade and exchange rate levels 5. Protecting the environment 6. Fairness and helping the disadvantaged
5.2.1 Economic growth o genuine growth o real gDP
5.2.1 Economic growth ❖ genuine growth ❖ real GDP
5.2.2 Price stability and inflation Stable Price and Stable Financial System Rate of inflation Consumer Price Index(CPD) .o a measure of the overall cost of the goods and services bought by a typical consumer CPI in year 2-CPI in year 1 . Inflation rate in year 2 ×100 CPI in year 1 GDP deflator o a measure of the price level calculated as the ratio of nomina GDP to real GDP times of 100 .o GDP deflator= [Nominal GDP/ Real GDP X 100
5.2.2 Price stability and inflation ❖ Stable Price and Stable Financial System ❖ Rate of inflation ▪ Consumer Price Index (CPI) ❖ a measure of the overall cost of the goods and services bought by a typical consumer. ❖ Inflation rate in year 2 = ×100 ▪ GDP deflator ❖ a measure of the price level calculated as the ratio of nominal GDP to real GDP times of 100. ❖ GDP deflator = [Nominal GDP/ Real GDP] ×100 CPI in year 2 – CPI in year 1 CPI in year 1