Government decisions
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1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix


Governments in any country will primarily be influenced by political factors that shape their ability to maintain political power.  However, these political factors are often closely related to economic forces.  For example, the Federal and State Government responses to the natural disasters in Australia will usually involve financial assistance packages to affected groups, reflecting the need for governments to serve their constituents in a way that promotes social and economic objectives.  


Further, the 2008-9 response to the global financial crisis was motivated by a combination of economic and political factors.  Economically, the government recognised the need to prevent the crisis from causing a 'recession' in Australia.  Politically, the electorate expected the government to act decisively to prevent loss of jobs and incomes.  The speed and extent of the government stimulus measures was primarily motivated by political factors.  The government was intent on being seen to be doing everything possible to ward off the negative effects of the economic downturn.  Economically, however, the speed and extent of the stimulus measures was less than optimal.  A number of the stimulus measures were rushed through parliament and became examples of 'poor economic policy.'  For instance, the increase in infrastructure spending on many primary school buildings and the rebate for home insulation, were not carefully thought through.  Unnecessary building programs at schools were commenced and inappropriate (and dangerous) insulation installation methods were employed.  (However, the policy decisions did help to prevent Australia entering a ‘technical’ recession.)  Arguably, the political imperative to act decisively outweighed the need to implement 'efficient' economic policy decisions.  


Importantly, governments must carefully balance the needs of different (pressure) groups in society.  The fact that electoral cycles in Australia endures for three years means that there is a real temptation to give undue weight to political factors over economic or social factors.  This sometimes results in bad government decision making when, for example, scarce government resources or funding are promised to marginal electorates.  In this respect, government decisions are not made in the best interests of all Australians and national living standards are compromised.  See budgetary, monetary and aggregate supply policies for more information about government policies more generally.

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