LEARNING OUTCOME 6 Government and the Economy LO6a Govt obj

LEARNING OUTCOME 6 Government and the Economy LO6a - Govt. objectives & trade-offs QUESTION 1 16 MARKS The Government has many objectives that it seeks to achieve. Key objectives include: a) Economic growth; b) Price stability; c) Full employment; d) Income distribution. Action Required 1) For each objective listed above: Briefly explain the economic concept and the Government\'s general objective; a) b) Briefly outline one economic reason why this is a key objective of Governments (5 marks) (5 marks) For any three objectives listed above, explain their inter-relationships (this may be positive or negative) that exists between them i.e. explain the transmission channel feedback loop that exists, or may exist, between them- how each affects, and in return are affected by, the other two objectives 2) (6 marks)

Solution

1.A and B.

Economic growth-It is the rise in the amount of goods and services produced in an economy in a given financial year.It is characterized by the rise in GDP.Government/s major objective is to raise GDP because it indicates higher standard of living for the people of the country.

Price stability-It is the condition when neither there is high Inflation nor high recession.Price stability is necessary because both a very high Inflation or high recession has serious economic effects on the economy.The government must ensure price stability.

Full employment-Full employment is acceptable level of unemployment If there is only 5% unemployment in an economy,then the economy is considered to be in a state of full employment.For an economy to function healthily,there must be full employment.This signifies prosperity .

Income distribution-It is the way income is distributed among different individuals or sections of society.How much income is shared by how much population.The government\'s objective is to ensure equal income distribution.Income equality ensures that there is not very high income gap between different sections.If the income distribution is uneven,then the development of economy becomes difficult.

2.Economic growth-full employment-income distribution:Economic growth ensures that there is full employment (or at least a rise in the level of employment) because aggregate demand rises as a result of economic growth.To meet this raised demand,the production must rise.The firm\'s and industries would employment more labour and capital to increase their production.As a result,the level of employment rises.When employment rises,wages rises and number of income earners rises.A section of the population which was unemployed and was very poor could earn now.Therefore,the income distribution becomes more even.

I have summed up part A and B together to get more clarity about the answer.If you\'ve any queries,please feel free to comment.