Level 2 Economics Achievement Standard 91227 Analyse how government policies and contemporary economic issues interact An introduction that describes what sustainable economic growth is and why it is desirable for households, firms and government Sustainable economic growth is a rate of growth that can be maintained by the economy without causing any major economic problems. Economic growth occurs when changes in 3 determinants occur including real GDP/ income increasing, Productive capacity increasing and an increase in net social welfare. Sustainable economic growth is desirable to households as household incomes increase as employment increases or the number of hours worked increases, to keep up with the demand for labour in times of economic …show more content…
A policy the government could implement in addition to the other policies mentioned earlier is monetary policy. Monetary Policy is the use of the official cash rate (OCR) in order to maintain price stability and control inflation. The Reserve Bank of New Zealand is responsible for monetary policy and is required to keep inflation between 1 and 3% with a focus on 2% over the medium term. This has been decided upon by the Minister of Finance Bill English and the Reserve Bank governor Graeme Wheeler. Monetary policy involves making changes to interest rates in bank settlement accounts within the Reserve Bank and other banks such as Westpac and ASB. These interest rate changes will then be spread from other banks onto borrowers and savers and cause changes within the economy. If inflation is expected to rise the Reserve Bank will implement a contractionary/ loose monetary policy. This involves increasing the OCR in order to increase interest rates, increase savings and decrease borrowing. This will then flow on to impact the aggregate demand equation as households will be putting more of their household incomes into banks to save or will be spending more in paying off loans and mortgages; …show more content…
For example a disadvantage of this policy is that Real GDP decreases which decreases growth, this is not what the government wants to achieve but if the OCR is increased at a smaller rate than the government increases its spending it will cause inflation to not increase at fast rates and also will achieve economic growth; although this growth will not be as great as if only an expansionary fiscal policy was implemented but there will be less inflation occurring too and this will cause the growth within the New Zealand economy to be more sustainable as it is easier to maintain. I propose that the economic growth will be easier to maintain, as it will not cause as many economic problems as if a fiscal policy was implemented alone. There will still be an increase in employment, economic growth and a slight increase in the price
The following case study critiques Upton’s vision to establish a sustainable community through implementing comprehensive sustainable strategy. The urban periphery development is thought to demonstrate superior execution of sustainable principles in development (Jackson 2007). As a parallel, the report focuses on the development of Upton’s design code and demonstrates how large -scale mix-use developments can incorporate sustainable practice and principles of urban growth.
Monetary Policy is another policy used in Keynesianism which is a list of protocols designed to regulate the economy by setting the amount of money that is in circulation and controlled interest levels. The Federal Reserve system, also known as the central banking system in the U.S., which holds control of this policy. Monetary policy has three tools used by the Federal Reserve to enforce this policy. Reserve Requirement is the first tool that determines the lowest amount of money a bank must possess and is not able to lend out. The second way to enforce monetary policy is by using the discount rate or the interest rate a bank will charge.
The Federal Reserve and Macroeconomic Factors Introduction The Federal Reserve controls the economy of the United States through a variety of tools. They use these tools to shape the monetary policy of the United States in order to promote economic growth and reduce the rate of inflation and the unemployment rate. By adjusting these tools, the Fed is able to control the amount of money in the supply. By controlling the amount of money, the Fed can affect the macro-economic indicators and steer the economy away from runaway inflation or a recession.
Common Sense Economics: What Everyone Should Know About Wealth and Prosperity, written by James Gwartney, Richard Stroup, Dwight Lee and Tawni Ferrarini, explains the foundation of economics and how it all works in all aspects of our lives from the role of the government trickling down to personal credit cards and savings. This book was written with clear language for the audience to understand and comprehend the large amount of information within its condensed size. The authors’ target audience for this book seemed to be for those individuals wanting to learn the mechanics of economy including economic growth and stability. Gwartney separates his book into four parts: Part I, Twelve Key Elements of Economics, Part II Seven Major Sources of Economic Progress, Part Three Economic Progress and the Role of Government, and Part IV Twelve Key Elements of Practical Personal Finance.
Sustainable prosperity is a very controversial topic. There are a lot of differing opinions about what it is or how it affects us. What is sustainable prosperity? Let’s break it down. Prosperity, it is the idea that all humans needs are met, and they are able to follow a life of happiness. Sustainability, means being able to continue something over generation after generation. We live in a globalizing world today, but to what extent does globalization contribute to sustainable prosperity? Globalization promotes sustainable prosperity, but at the same time it is holding it back. But over all it limits the prosperity of all people in many ways. Globalization affects the way we live, and it has negative affects that cause people to live miserable lives.
Monetary policy is the mechanism of a country’s monetary authority (usually the central bank) taking up measures to regulate the supply of money and the rates of interest. It involves controlling money in the economy to promote economic growth and stability by creating relatively stable prices and low unemployment. A monetary policy mainly deals with the supply of money, availability of money, cost of money and the rate of interest to attain a set of objectives aiming towards growth and stability of the economy. Here are some of the monetary policy tools:
The term Monetary policy refers to the method through which a country’s monetary authority, such as the Federal Reserve or the Bank of England control money supply for the aim of promoting economic stability and growth and is primarily achieved by the targeting of various interest rates. Monetary policy may be either contractionary or expansionary whereby a contractionary policy reduces the money supply, reduces the rate at which money is supplied or sets about an increase in interest rates. Expansionary policies on the other hand increase the supply of money or lower the interest rates. Interest rates may also be referred to as tight if their aim is to reduce inflation; neutral, if their aim is neither inflation reduction nor growth stimulation; or, accommodative, if aimed at stimulating growth. Monetary policies have a great impact on the economic stability of a country and if not well formulated, may lead to economic calamities (Reinhart & Rogoff, 2013). The current monetary policy of the United States Federal Reserve while being accommodative and expansionary so as to stimulate growth after the 2008 recession, will lead to an economic pitfall if maintained in its current state. This paper will examine this current policy, its strengths and weaknesses as well as recommendations that will ensure economic stability.
According to federalreserveeducation.org, the term "monetary policy" refers to what the Federal Reserve, the nation 's central bank, does to influence the amount of money and credit in the U.S. economy, (n d). The tools used are diverse but the main ones are:
Interest rates and the effects of interest rates on the economy concern not only macroeconomists but consumers, savers, borrowers, and lenders. A country may react and change their interest rates, according to the prosperity of their economy. Interest rates, is the percentage usually on an annual basis that is paid by the borrower to the lender for a loan of money (Merriam-Webster). If banks decided not to use interest rates, it would be impossible for others to be able to take out loans and therefore, there would be far less spending money in the economy. With interest rates, this allows banks to take a percentage of the consumer’s money and loan it out to others, thus allowing economic growth to be possible. Interest rates also allow lenders to have a “safety net” which is necessary because there is a possibility that the borrower would be unable to pay back a loan to the bank. A nation’s interest rates can be raised or lowered and these shifts in interest rates correlate directly to aggregate demand. Aggregate demand, is the total demand for final goods and services in an economy at a given time (Business Dictionary). A nation uses interest rates for economic growth or to help prevent inflation. When economic growth is needed a nation would lower their interest rates. However, if a country is concerned about inflation, they may choose to raise their interest rates. When interest rates, raised or lowered, will have a negative or positive impact on consumers, and have a positive or negative impact on investors.
The United Nations Conference on Environment and Development (1992) The Declaration of Rio on Environment and Development [Online] Available at: http://www.unep.org/Documents.multilingual/Default.asp?DocumentID=78&ArticleID=1163
In order for any country to survive in comparison to another developed country they must be able to grow and sustain a healthy and flourishing economy. This paper is designed to give a detailed insight of economic growth and the sectors that influence economic growth. Economic growth in a country is essential to the reduction of poverty, without such reduction; poverty would continue to increase therefore economic growth is inevitable. Through economic growth, it is also an aid in the reduction of the unemployment rate and it also helps to reduce the budget deficit of the government. Economic growth can also encourage better living standards for all it is citizens because with economic growth there are improvements in the public sectors, educational and healthcare facilities. Through economic growth social spending can also be increased without an increase of taxes.
Ayres (2008) advances the concept of ‘sustainability economics’, which deals with the issue of maintaining economic growth while paying special attention to environmental concerns of energy utilization and resource exhaustion, especially carbon fuel consumption and its relation to climate change.
The first is to encourage economic growth and sustainable development. It emphasizes the need for economic growth, the need to improve the level of contemporary human welfare through economic growth, enhance national strength and social wealth. However, sustainable development should not only pay attention to the amount of economic growth, but also to the pursuit of quality of economic growth. That is economic development, including growth in the number and quality improvement in two parts. Growth in the number is limited, and rely on scientific and technological progress and improving the effectiveness of economic activity and quality, adopt a scientific mode of economic growth is sustainable. Flag of sustainable development is the sustainable use of resources and good ecological environment. Economic and social development can not exceed the carrying capacity of resources and the
‘Development that meets the needs of the present with the ability for the future generation to meet their own needs.’ (World Commission on Environment and Development, 1987) Sustainable development requires three key components: economy, society and environment, sustainable development can be success through striking balance in those factors. These three components are indispensible, they compel to depend on each other. On the other words, we can only gain a decent and energetic environment and society if the economy is strong with a healthy a stable growth rate.
We all know the urbanization rate is an index to value the development of a country. However, though urbanization provides great convenience to some individuals, it also brings about negative effects. Problems such as pollution, overcrowded and the high unemployment appear during the process of urbanization and they are hard to cope with. In face of the sequence of problems, a new way of development ----sustainable development was put forward. Just like its literal meaning, the word sustainability has something to do with continuity. It was used since 1980s and first appeared in Britain law in 1993. Sustainable development can help solve parts of the problem caused by urbanization, including environmental damage, overuse of resources, and natural disasters.