《Economics from Miss Chen》chp5.ppt

Chapter 5 POLICY CHOICES 5.1 GOVERNMENT AND ECONOMIC MANAGEMENT Policy the deliberate use of a government’s economic and legal power to try to achieve specified or understood outcomes. E.G. laws, institutions, day-to-day management of government services Microeconomic policy targets particular industries or products or markets. e.g. government provides a subsidy to a particular industry in trouble Macroeconomic policy thing that apply across all states and industries. e.g. income and business tax rates, the overall rate of unemployment in the economy, growth in GDP 5.2 OBJECTIVES OF GOVERNMENT POLICY Economic growth and efficiency Stability of prices High employment and low unemployment Healthy trade and exchange rate levels Protecting the environment Fairness and helping the disadvantaged 5.2.1 Economic growth genuine growth real GDP 5.2.2 Price stability and inflation Stable Price and Stable Financial System Rate of inflation Consumer Price Index (CPI) a measure of the overall cost of the goods and services bought by a typical consumer. Inflation rate in year 2 = ×100 GDP deflator a measure of the price level calculated as the ratio of nominal GDP to real GDP times of 100. GDP deflator = [Nominal GDP/ Real GDP] ×100 5.2.3 Employment Outcomes of Unemployment a loss of human capital for lost of skills social costs resulting from depression and poor health or anti-social behavior and crime Reasons of Unemployment individuals consciously choose not to work increasingly rapid structural change in many industries 5.2.4 Trade and trade indicators Trade Balance Current Account Capital Account Balance of Payment Exchange Rate reflects what others think the value of a currency should be TWI (trade-weighted index): value of the exchange rate of the domestic dollar with all major trading partner currencies 5.2.5 Care for the environment Green Account national accounts which include an allowance for changing value of the enviro