Make the most efficient/productive use of economic resources
Establish laws/infrastructure so the economy operates efficiently and effectively
Establish and maintain a standard of living accessible to all
Ensure a stable economy
Balance competing economic and social interests
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Monetary Policies
Policies placed by the government that change the interest rate and influence money supply
Usually impacts the amount of money circulating in the economy to control inflation
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Fiscal Policies
Policies that involve the government changing tax rates and levels of government spending to influence aggregate (total) demand in the economy
These policies usually adjust spending, taxation and borrowing within the budget
3 of 4
Government Role in Market failures
The government can place taxes on goods/services, particularly socially undesirable or harmful goods/services (e.g. cigarettes or alcohol)
They can subsidise desirable goods/services, which is usually a cash payment (e.g. subsidies for homes with solar power)
The government can introduce legisaltions (laws) that alter the allocation of resources or discourage businesses from certain economic activity, such as price-fixing in petrol stations
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