Government's Economic Objectives: Achieving Growth, Employment, and Sustainability

1. Chapter 24

2. Economic Objectives/Aims of the Government • Achieve full employment • Control government finances • Improve infrastructure • Control price inflation • Broaden the tax base • Care for the environment • Achieve sustainable economic growth

3. Economic Objectives/Aims of the Government cont. • Promote balanced regional development • Create a just social environment/ensure equal distribution of wealth • Maintain state services • Stabilise the banking sector • Achieve equilibrium of balance of payments

5. Governments can achieve economic growth by implementing the following strategies: • Provide an economic infrastructure in which private industry can survive and flourish • Adopt fiscal and monetary policies that stimulate private industry, e.g. low rate of taxation of corporation profits, low rate of interest on credit • Promote government policies designed to encourage the private sector, e.g. grants and financing training schemes from public funds • Sponsor state trading corporations

8. Policies to Achieve Balanced Regional Development • Decentralise the public service • Invest in the infrastructure • Develop/promote educational opportunities • Ease planning restrictions • Government spatial strategy • Tax and other incentives to attract industry • Invest in communications • Improve access to and from other regions • Provide leadership programmes

9. Improve Infrastructure To ensure a high standard of living, generate economic growth and attract foreign direct investors, it is imperative that there is continued development in infrastructure in the country, such as: • The development of road infrastructure • The provision of public transport • The development of airports and seaports • A significant increase in the quality of telecommunications infrastructure

10. Create a Just Social Policy/Ensure Equal Distribution of Wealth • Social policy refers to the provision of income and/or services for those who, for one reason or another, would find it difficult to provide for themselves if exposed to the full rigours of the market economy.

11. Control Price Inflation/Price Stability • Stabilises the cost of living • Prevents demands for wage increases • Keeps Irish industry internationally competitive • Loss of competitiveness: A situation where our goods abroad are less attractive to foreign buyers.

13. Instruments in Achieving Economic Aims and Objectives • Monetary policy • Fiscal policy • Exchange rate policy • Direct intervention • Deregulation • Prices and incomes policy • Economic planning

14. Monetary policy is actions by the European Central Bank that influence: • Money supply via changing the amount of money in circulation. • Interest rates via changing the ECB base rate on which all variable rates depend. • The availability of credit via changing the rules on issuing loans.

15. Fiscal policy is any action taken by the government that influences the timing, magnitude and structure of current revenue and expenditure. It is carried out by increasing or decreasing tax and increasing or decreasing government spending. • Exchange rate policy is directly controlled by the ECB and refers to the devaluation (making the currency worth less) and revaluation (making the currency worth more) of the euro in terms of other currencies.

16. Direct intervention refers to the government’s ability to directly intervene in the economy in order to achieve its aims and objectives achieved by passing legislation and setting up semi-state bodies. • Deregulation is regarded as a form of direct intervention and involves the government changing laws and practices that it deems detrimental to competition.

17. Prices and incomes policy is a method used by the government to control inflation by restraining prices and incomes. It is implemented by imposing wage freezes or strict limits on wage increases, setting maximum prices for certain essential items and government approval on price increases for companies.

18. Nationalisation • Nationalisation means taking an industry or assets into public ownership by a government.

20. Privatisation • Privatisation is used to describe the sale or transfer of public sector assets to the private sector.

22. Physiocrats (1750–1800) • Agriculture was the only productive sector of the economy – the trade and industry sectors were sterile • Free trade was favoured • State intervention should be kept to a minimum • Advocated a self-interest approach (laissez-faire economic system)

23. François Quesnay (1694–1774) • Produced Tableau Économique in 1785 (Economic Table), similar to what we now refer to as the circular flow of income. • Quesnay’s analysis showed that agriculture was the only sector of society producing a surplus and the other sectors consumed what they produced.

24. Jacques Turgot (1727–81) • Law of diminishing returns in agriculture • An advocate of non-governmental intervention in economic affairs • Turgot suggests that the value of an item depends on its utility to the buyer