LESSON 17 - The Role of Government in The Economy
LESSON 17 - The Role of Government in The Economy
LESSON 17 - The Role of Government in The Economy
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O level, Igcse and Gcse revision notes
Main Lecture:-
Monetary policy uses the interest rate of the central bank to influence
demand
Policy aims and actions can sometimes conflict. For example, raising taxes
or interest rates to reduce price inflation may reduce employment and
economic growth in output and incomes.
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O level, Igcse and Gcse revision notes
(i) Fiscal policy involves varying total public sector expenditure and/or the
overall
level of taxation to influence the level of demand in an economy. If the
demand in the economy increases (aggregate demand), so does the economic
activity which in turn triggers economic growth.
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O level, Igcse and Gcse revision notes
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O level, Igcse and Gcse revision notes
services and
could be provided for free profits, and may expand
their
output and employment
Cut public Public sector workers could A cut in public spending on
expenditure suffer pay cuts or be made capital projects, such as
unemployed. Welfare road
benefits and school building, will
may be reduced. cause
cutbacks in the
construction
industry. Subsidies paid to
other firms may be cut
(ii) Monetary policy involves varying the interest rate charged by the
central bank for lending money to the banking system in an economy.
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O level, Igcse and Gcse revision notes
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O level, Igcse and Gcse revision notes
Q1. How might a reduction in taxation help any two macro-economic aims
of a government?
Q3. Discuss the actions that a government might take to control inflation.
Note:- You can find the answers to all of these questions in the lecture
above!
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