Government Objectives and Policies Chart

Objective Fiscal Policy Taxation Monetary SupplySide Impact on AD Impact on AS Criteria Set by Why Aim for Priority
Policy Policy Government This
Objective?
Economic Growth Infrastructure Investment: Direct: Lower Interest Support R&D: Increase AD: Increase AS: Growth To improve High
Advantages: Creates jobs, Progressive (e. Rates: Advantages: Higher Improved Targets: Set living
stimulates demand. g., income tax) Advantages: Promotes demand from infrastructure specific GDP standards and
Disadvantages: High initial costs, Indirect: Encourages innovation. jobs created enhances growth rates to increase
potential for budget deficits. Proportional borrowing and Disadvantages and spending productivity. achieve. national
(e.g., VAT) spending. : Uncertain increases. Investment wealth.
Disadvantages returns on Levels: Define
: Risk of investment. minimum
inflation if too investment
low for too amounts for
long. infrastructure
projects.
Low Unemployment Job Creation Programs: Direct: LowInterest Vocational Increase AD: Increase AS: Unemploymen To ensure High
Advantages: Directly reduces Progressive (e.
Loans: Training: More income Bettertrained t Rate Targets: social stability
unemployment. Disadvantages: g., higher Advantages: Advantages: leads to higher workforce Set specific and enhance
Can be costly and temporary. income tax for
Encourages Aligns skills consumption. increases rates to reach economic
high earners)hiring and with job productivity. within a productivity.
Indirect: investment. market needs. timeframe.
Regressive (e.
Disadvantages Disadvantages Program
g., sales tax,
: Risk of : Funding
GST) default if Timeconsumin Levels: Define
businesses g to budget for job
fail. implement. programs.
Price Stability Austerity Measures: Advantages: Direct: Raise Interest Encourage Decrease AD: Increase AS: Inflation To maintain Medium
Helps control inflation. Proportional Rates: Competition: Reduced Encourages Targets: Set purchasing
Disadvantages: Can lead to higher (e.g., flat tax Advantages: Advantages: spending due efficiency and specific power and
unemployment and reduced rate) Indirect: Controls Lowers prices to higher taxes lower costs in inflation rates foster
growth. Regressive (e. inflation and improves or cuts in the long run. to maintain. economic
g., excise tax) effectively. quality. services. Budget Deficit confidence.
Disadvantages Disadvantages Limits: Define
: Can slow : Can harm acceptable
down small levels of
economic businesses deficit
growth and unable to spending.
increase compete.
unemployment
.
Government Objectives and Policies Chart

Objective Fiscal Policy Taxation Monetary SupplySide Impact on AD Impact on AS Criteria Set by Why Aim for Priority
Policy Policy Government This
Objective?
Fair Income Distribution Progressive Taxation: Direct: Support Education Decrease AD: Increase AS: Equity To promote Medium
Advantages: Reduces inequality. Progressive (e. LowIncome Funding: Higher taxes Better Targets: Set social justice
Disadvantages: Can deter g., high Loans: Advantages: may reduce education goals for and economic
investment and savings. income tax) Advantages: Provides equal disposable leads to a reducing equity.
Indirect: Improves opportunities. income for more skilled income
Regressive (e. access to Disadvantages some. workforce, inequality.
g., VAT on credit for : Requires enhancing Funding
basic goods) disadvantaged longterm productivity. Levels for
groups. commitment Social
Disadvantages and funding. Programs:
: Risk of Define
creating debt minimum
cycles. budgets for
welfare
initiatives.
Balance of Payments Stability Export Subsidies: Advantages: Direct: Currency Trade Increase AD: Increase AS: Trade Deficit To strengthen High
Boosts exports and local Proportional Stabilization: Agreements: Higher export Supports Targets: Set the economy
businesses. Disadvantages: Can (e.g., tax Advantages: Advantages: demand industries that acceptable and improve
lead to trade disputes and incentives for Makes exports Opens up new increases boost levels for trade foreign
dependence on subsidies. exporters) more markets. overall production deficits. exchange
Indirect: competitive. Disadvantages economic capacity. Export Growth stability.
Progressive (e. Disadvantages : May hurt activity. Rates: Define
g., export : Can be costly domestic specific
taxes) and industries. growth targets
unsustainable for exports.
longterm.
Fighting Inflation Reduce Government Spending: Direct: Raise Interest Decrease AD: Increase AS: Inflation Rate To ensure High
Advantages: Controls inflation. Proportional Rates Quickly: Less More efficient Limits: Set economic
Disadvantages: Can lead to higher (e.g., flat tax Advantages: government production maximum stability and
unemployment and reduced rates) Effective in spending processes acceptable protect
public services. Indirect: controlling reduces lower costs. inflation rates. consumers'
Regressive (e. inflation. overall Spending Cut purchasing
g., sin taxes) Disadvantages demand. Goals: Define power.
: May cause specific
recession and percentage
job losses. cuts in
spending.
Government Objectives and Policies Chart

Objective Fiscal Policy Taxation Monetary SupplySide Impact on AD Impact on AS Criteria Set by Why Aim for Priority
Policy Policy Government This
Objective?
Tackling Recession Stimulus Packages: Advantages: Direct: Cut Interest Increase AD: Increase AS: Economic To revive the Very High
Quickly boosts demand. Progressive (e. Rates: Direct cash Infrastructure Recovery economy and
Disadvantages: Can lead to g., tax rebates Advantages: payments and improvements Targets: Set reduce
longterm debt. for lowincome Encourages tax cuts boost longterm specific GDP hardship for
earners) borrowing and stimulate production growth rates to citizens.
Indirect: spending. spending. capacity. achieve
Proportional Disadvantages postrecession.
(e.g., reduced : Risk of DebttoGDP
VAT) inflation if Ratios: Define
maintained too acceptable
long. levels of
public debt
during
recovery.