Section C: Part 2 Government policies to deal with the macroeconomic objectives

Chapter 37: Economic policy and policy instruments

Group task:

Gangnamland has the following characteristics;•3% unemployment• 8% inflation•Current account deficit of $US 10 billion•economic growth 6%•GDP 250 billion•air pollution & congestion problemsYour group are the financial advisors to government. What steps should the government take to improve things in the country?Make notes & report back in 10 minutes

Review:

•What are the macroeconomic objectives?

•What do governments want to happen

with these macroeconomic objectives?

•How could they achieve these objectives?

The government controls these objectives

by using policy instruments;

•taxation rates

•government expenditure

•interest rates

• Govts use policy instruments together in its Economic

Policy

1. Fiscal policy: ↑↓ taxation &/or government spending

→ ↑↓ aggregate demand

2. Monetary policy: ↑↓ interest rates → ↑↓ agg.

demand

3. Supply side policies: ↑productive capacity (supply) in

the labour, capital and goods markets

• These will be looked at in detail in the following

chapters

* Try Getting started, Q1 & Exam practice