The Goals of Government Policy
- To maintain full employment
- To ensure price stability (keeping inflation under control)
- To achieve a high level of economic growth
- To keep exports and imports in balance
The government has two methods open to them to manage the economy fiscal policy and monetary policy.
Fiscal Policy = Using taxation to control spending
Monetary Policy = Using interest rates to control spending
Inflation- A general increase in the level of prices in the economy. Inflation is measured by the CPI (Consumer Price Index). Inflation leads to an increase in a firm's costs as they have to pay more their raw materials and compnents and workers will demand higher wages as prices go up. Some firms may take advantage of higher prices.
Interest Rates- The price at which a business or individual is charged for borrowing money OR the interest received by a business or individual…