Chapters
- What Are the Main Economic Objectives of the Government?
- Examples of Policies That Can Help Achieve Economic Growth
- What’s the Difference between GDP and Real GDP?
- How Do Policies for One Objective Affect Others?
- How Does the Government Deal With Unemployment?
- Measuring Employment and Unemployment
- Types, Causes, and Consequences of Unemployment
- Conclusion
Across the globe, governments strive to try and create a stable and prosperous environment for their people, but what exactly are the key objectives that drive their policies?
Generally, most governments don’t make important decisions on a whim, instead focusing on very specific goals which are designed specifically to foster economic growth and improve their civilians' quality of life.
However, balancing these objectives is no easy task, and it often involves navigating complex challenges and trade-offs. From maintaining full employment to ensuring price stability and managing environmental concerns, the journey is filled with intricate decisions that impact everyone's lives.
What Are the Main Economic Objectives of the Government?
While every government is different, most have several core economic objectives in common. Arguably the most important of these is making sure that the majority of the general public are able to find work.
High employment levels are super important for cultivating a healthy economy because they lead to higher productivity and income. Additionally, without enough people in employment, the economy can quickly take a nosedive.
Linked to this is economic growth. Achieving economic growth means increasing the production of goods and services, which usually results in more jobs, higher incomes, and improved living standards. A growing economy also provides the government with higher tax revenues, which can be used to fund public services such as healthcare, education, and infrastructure.
Next up is price stability. Keeping inflation in check is vital because when prices begin to rise too quickly, it can make everything more expensive, putting off people from purchasing goods and services they could once afford and dragging down the economy as a result.
Inflation can also hit businesses hard, with the cost of essential materials, wages, and other expenses fluctuating rapidly. This unpredictability makes it challenging for businesses to plan for the future, invest, and grow, which in turn slows down economic progress even further.
Lastly, balancing payments is also important. Essentially, this refers to managing the country's financial transactions with the rest of the world to ensure that the value of imports does not consistently exceed the value of exports. For instance, if a country buys more from abroad than it sells, it can lead to a trade deficit, which might increase national debt and weaken the currency.
Below you’ll find an easy to read table summarising these objectives, as well as several other important ones:
Examples of Policies That Can Help Achieve Economic Growth
Still a bit confused about how governments achieve economic growth as one of their main objectives? Here are some examples of how they tend to go about it:
1. Investment in infrastructure: Investing in building and maintaining important infrastructure like roads, bridges, and public transportation creates jobs and improves productivity by making it easier for people to commute to and from work.
2. Education and Training Programs: By putting money into education, governments equip people with the skills needed to work in modern industries - leading to higher employment rates.
3. Tax incentives for Businesses: Offering tax breaks or subsidies to businesses can encourage them to invest in new projects, hire more workers, and expand their operations, all of which contribute to economic growth.
4. Research and Development Funding: Likewise, supporting innovative projects through the use of grants can lead to new advancements in tech, further driving economic growth.
5. Trade Policies: Negotiating trade agreements that open up new markers for a country's goods and services can majorly boost exports as a whole.
What’s the Difference between GDP and Real GDP?
When talking about economic growth, two key terms tend to come up - Gross Domestic Product (GDP) and Real Gross Domestic Product (Real GGP). But why do they matter and how do they fit into all of this?
GDP measures the total value of all goods and services produced within the country over a specific amount of time, usually a year.
GDP provides a sort of snapshot of the nation's economic health and whether the economy is growing, falling or remaining stable. However, GDP has its limitations as it doesn’t factor in inflation on the value of goods and services.
For instance, say the UK produced 1 trillion worth of goods and services last year and 1.5 trillion this year, it might seem like the economy has grown by 5%. However, if inflation was also at 5% then prices would have also risen, meaning the actual amount of goods and services produced hasn’t really changed.
This is where real GDP comes into the picture. Basically, real GDP adjusts the nominal GDP figure to account for inflation, providing a clearer picture of whether the economy is actually growing in terms of production.
How Do Policies for One Objective Affect Others?
Unfortunately, achieving one economic objective can sometimes hinder another. For example, certain policies designed to boost employment can often lead to higher inflation taking place.
Why? Well, when more people are employed they obviously have more money to spend, which can increase demand for goods and services - this higher demand can push prices up quite a bit, leading to inflation.
Similarly, policies that aim to control or slow down inflation often involve reducing the money supply or increasing interest rates, which can slow down economic growth and increase unemployment.
Understanding these trade-offs can help us better understand why government policies can sometimes seem very inconsistent or contradictory. All in all, it's a delicate balancing act that requires careful planning and constant adjustment.
How Does the Government Deal With Unemployment?
So how does unemployment factor into all of this? Unemployment is a major concern for any government because it negatively affects not only individuals and families but also the economy as a whole. Here’s how employment and unemployment are measured, the types and causes of unemployment, and the policies governments implement to reduce unemployment.
Measuring Employment and Unemployment
In order to get as clear a picture of the job market as possible, the government actively measures employment levels by counting the number of people currently working. Alongside this, the unemployment rate also shows the percentage of people in the labour force who want to work but are struggling to find a job.
Types, Causes, and Consequences of Unemployment
Unemployment isn’t exactly a one-size-fits-all issue. There are several types, each with its own different causes and effects:
Structural Unemployment: This happens when workers' skills don’t match the jobs available. Technological advancements or shifts in the economy can leave some workers behind. As a result, workers might need retraining to find new employment.
Seasonal Unemployment: Some jobs are only available at certain times of the year. Think of farm workers who are busy during planting and harvest seasons but might be out of work in the off-season. This type of unemployment is predictable and often temporary.
Frictional Unemployment: Short-term unemployment occurs when people are between jobs or entering the labor market for the first time. This is a natural part of the job market and usually short-lived.
Cyclical Unemployment: This occurs during economic downturns. When there’s less demand for goods and services, companies will cut back on production and lay off workers. The recent economic impacts of the COVID-19 pandemic are a clear example of cyclical unemployment. Unfortunately, this can lead to widespread job losses and economic instability.
Conclusion
In conclusion, governments strive to create stable and thriving communities by focusing on key goals like full employment, economic growth, and keeping prices stable. However, balancing these goals requires many tough decisions and managing trade-offs. Additionally, unemployment is another major issue for governments to contend with too. Typically, they try to tackle this issue by understanding the different types and causes of unemployment and using strategies like education, job creation, and support services.
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