1. Why do governments intervene in the economy? In most countries it is the government’s job to manage the economy. This is the same in Ireland and will be an important part of Sarah Feeney’s job as Taoiseach. Managing the economy involves promoting economic growth, making sure that inflation stays low and ensuring that people have jobs and are treated fairly. If the economy performs well and most people’s living standards improve, then a government will hope to be re-elected. Every government has six main economic objectives.
(a) Promote economic growth Most governments want economic growth as a means of raising living standards and increasing tax revenues.
(b) Keep unemployment low More people in employment means more tax revenues to fund government spending. Low unemployment also usually means a better quality of life for a country’s citizens.
(c) Keep inflation low
A high inflation rate makes budgeting and planning for households, businesses and governments very difficult and discourages growth. It also erodes the value of money. In most countries inflation is controlled by the central bank.
(d) Promote sustainable development Economic growth involves significant opportunity costs in terms of its social and environmental impacts. Economic growth, therefore, needs to be environmentally sustainable.
(e) Promote fairness Fairness in economics is a common objective among most democratically elected governments. However, this can mean different things to different people. For one person, fairness can mean higher taxes on the rich rather than the poor. For another person, fairness can mean less tax for entrepreneurs who try to start new enterprises that create jobs and incomes for others.
