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Neel and Casper

Question - Aims of Government policy are always conflicting with each other. Discuss why and how it happens.

The 6 Government aims -1. Price Stability


2. Redistribution of income 3. High Employment 4. Economic Growth 5. Economic Development

6. External Equilibrium

Government Aim#1- Price stability

Has to keep the inflation rate as low as possible, Price of everything is kept low.

Continued......
If everything is at a low price then people wont feel compelled to work a lot.
This conflicts with the fact that there needs to be a little inflation to create employment and the availability of jobs to the public. Low inflation rate VS A little bit of inflation needed to increase employment to give buying power to the people.

Government Aim#2 Redistribution of income


The gap between the rich and poor has to decrease.

Continued......
In order for that to happen, the rich will have to pay more taxes. But they will consider it unfair and refuse to pay the taxes Money being circulated equally VS The rich refusing to pay a lot more.

Government Aim#3 High employment


In order to create more jobs, the government has to increase its spending by EMP.

Continued........
So that the people will have some money to spend, this will increase AD which will then increase employment as well. When there is more employment there will again be an increase in buying power which will also increase the AD again, which will increase inflation rates.

There is also a loop here which is directly linked to government spending.


High employment VS Inflation rates increasing

Government Aim#4 Economic Growth

This aims at increasing the real GDP of a country

Continued.....
The number units produced has to increase, if its the cost that is only increasing then there is a sign of inflation. Economic Growth = High employment and living standards, and a low inflation rate. When employment is high, the living standards will be higher so that will increase economic growth.

Economic Growth VS employment.

A bit of inflation is needed for high

Government Aim#5 Economic Development

For the increase of Living standards there has to be more investments.

Continued.....
The interest rate has to be low so the people can take more loans from the banks. There will be alot of spending by the public.
Once people have money then more supply will be needed. Then more people will get employed. Than theyll have money to spend. Its an economic loop but soon the inflation levels will increase alot. Economic Growth (Low inflation rate is needed and more employment) VS Economic Development (Because of a lot of employment, the inflation will also increase)

Aim #6 External Equilibrium

Focuses on more exports than imports so the money earned by the exports can pay off the imports.

Continued.......
Equilibrium = Exports (money earned) = Imports ( Money spent )
One way to make equilibrium will be to decrease imports which is almost impossible because countries will need many things from other countries. Many countries require the resources and unless your a country which is blessed with them you will need to pay a lot of money to have them imported. And than that cost will most likely be higher than anything that you export. So your country should either invent something or find something that is worth a lot to export.

The End