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The economic aims of the government
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Privatisation
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LC Econ Economic Aim
LC Economics- Economics Objectives of Government
| Question | Answer |
|---|---|
| The economic aims of the government | Achieve Full Employment. Control price inflation. Achieve moderate economic growth. Boost exports. Control government finances. Broaden the tax base. Promote balanced regional development. Improve infrastructure. Improve state services. |
| Privatisation | This is the sale of a state owned company to private owners. |
| Nationalisation | The takeover of privately owned assets by the government/exchequer so as to increase public control in that industry. |
| The advantages of privatisation | Improved quality / choice of services. More competitive prices. Continuity of supply. Employment opportunities. More rewards/Incentives for innovation. Revenue from sale /reduce borrowing. Shedding of loss making companies |
| The disadvantages of privatisation | Loss of non-profit making services. Changes to working conditions. Loss of jobs. Loss of a state resource. Costs of the Sale. Foreign ownership |
| Advantages of Nationalisation | Stability to economy. Availability of credit. Rationalisation of banking services. Employment / consumer protection. Development of ethical banking practices. Continued provision of banking services to the community |
| Private Costs | Costs to the individual/company as a result of decisions they make |
| Social Costs | All the costs of production of the output of a particular good or service. We include the third party (external) costs arising from the decision (to society in general) |
| A chemical factory emits wastage as a by-product into nearby rivers and into the atmosphere. This is an example of.... | a social cost |
| Economic Growth | An increase in output per person in the economy. |
| Full employment | A situation in which jobs are available for all those willing to work at existing wage levels. |
| Laissez-faire | The economic doctrine that the state should not involve itself in economic matters. |
| Merit wants | Essential goods and services, such as health, education and housing. |
| Public Private Partnerships (PPPs) | Partnerships between public sector organisations and private sector investors and businesses for the purposes of designing planning, planning, financing, constructing and/or operating infrasturcture projects. |
| Welfare state | A state where the benefits of economic growth are distributed fairly. |
| Social Policy | Government policy in relation to the provision of essential goods and services to all citizens regardless of their ability to pay. |
| Equilibrium of Balance of Payments | A situation where a country's exports are roughly equal to its imports. |
| Structural deficits refer to | Deficits that are ongoing and not caused by any short term macroeconomic fluctuation. |
| Automatic stabilisers | An institutional feature of an economy that dampens its macroeconomic fluctuations, e.g., an income tax, which acts like a tax increase in a boom and a tax cut in a recession. |
| General government deficit | If a government spends (locally and nationally) more than it gets in income in any one year. |
| Possible conflicts between government economic objectives | full employment vs B of P/control of inflation/control of gov spending ■ Economic growth vs just social policy ■ Control of gov finances vs full employment/provision of infrastructure / Economic growth ■Balanced regional dev vs maintain state services |
| What policies can the government enforce to achieve just social policy? | Fiscal: implement a progressive income tax policy, reduce VAT on essential items and increase spending on social welfare |
| Discuss economic policies which the Irish government might pursue in order to reduce the level of unemployment. | ↓VAT (↑ spending ↑'s demand ↑'s demand for labour) ■ Subsidise labour employed ( ↓ rate of PRSI on additional labour ↓ cost of labour ↑ hiring) ■ Infrastructural dev (Funding capital improvements ↑ employment in construction) ■ Invest in edu-Training. |
| Balanced Regional Development | Government identifies and targets regions which are disadvantage or economically depressed and then implements policies which positively discriminate in favour of these regions. |
| Outline policies which the government could implement to promote regional development. | Decentralisation of state bodies ■ Grants/taxation ■ Invest in infrastructure ■ upgrade power supplies ■ upgrade 3rd level edu/training ■ improve access to/from region ■ Easing of planning restrictions ■ provide leadership programmes. |
| The Irish Government is considering the introduction of water charges for households. Outline the possible economic arguments in favour of the introduction of water charges for households in Ireland. | Reduced consumption/discourage waste ■ ↑ revenue for service provider ■ Improve water quality ■ Encourage investment in alternative technologies ■ Impossible to evade ■ help reduce need for direct taxes. |
| Policies used by the government | Fiscal ■ Monetary ■ Exchange rate ■ Direct intervention ■ Deregulation ■ Price controls / limit wage increases (collective bargaining) ■ Economic planning. |
| Why create full employment? | ↑ income for government ■ ↓ in expenditure ■ less social cost ■ ↑ spending in economy. |
| Why control inflation? | stabilise cost of living ■ Prevent wage increases ■ Keep Irish industry competitive. |
| How can the government control inflation? | Fiscal: ↑ tax to reduce demand ■ Monetary: ↑ interest rates to ↓ demand for loans ■ Price and incomes: impose wage freezes and impose price control orders. |
| How can the government achieve equilibrium of balance of trade? | Fiscal: ↑ tax to lower to ↓ income (this ↓'s demand for imports) ■ Monetary: ↑ interest rates on loans (less money to spend on imports) ■ Exchange rate: devalue currency (cheaper exports and more expensive imports) |
| Why achieve equilibrium in Ireland's Balance of Trade? | Ideally, gov aims to achieve imports = exports (at least). If imports > exports then the country is living beyond its means (buying to many foreign goods). If exports > imports this is a good sign but inflation could happen. |
| Why is it important for the government to have control of its finances? | To ↓ national debt ■ ↓ cost of servicing debt ■ make better use of resources ■ ↓ taxes ■ use surplus money to provide better services. |
| How can the government control its finances? | Fiscal: decrease expenditure and government borrowing. |
| Why should the government provide / improve an adequate national infrastructure? | To ensure a high standard of living, generate economic growth and attract foreign direct investors. |
| How can the government improve infrastructure? | Through the development of road infrastructure ■ provision of public transport ■ development of airports and seaports ■ significant increase in the quality of telecommuncations infrastructure. |
| Why would the government want to achieve sustainable economic growth? | Economic growth is aimed at increasing the average income per head of the population (Increased standard of living) |
| Outline policies that the Irish Government could implement to achieve sustainable economic growth. | By providing an economic infrastructure for private industry to survive/flourish ■ Fiscal: low corporate tax ■ monetary: low rate of interest on credit ■ ↓ the minimum wage ■ ↓ bureaucracy ■ Grants/financing training schemes from public funds. |
| *Economic growth | when the average consumer income per head of population increases without any fundamental change to the structure of society. |
| Positive economic consequence of economic growth. | ↑ employment ■ improved government finances ■ effect on balance of payments ■ improved standard of living ■ effects on migration ■ investment opportunities. |
| Negative economic consequences of economic growth. | Inflationary pressures ■ labour shortages ■ Demand for wage increases ■ increased demand for imports ■pressure in the housing market ■ pressure on state infrastructure ■ increased immigration/displacement of population. |
| Why does the government want to control price inflation and have price stability? | problems with inflation: loss of competitiveness (expensive exports / might be cheaper to import) ■ Difficult to attract FDI ■ workers will demand increased wages ■ affects those on lower incomes disproportionally. |
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