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4.7 What is the role of the state in promoting growth and development?

What students need to learn:

Students should be able to:
Additional Guidance Notes
Macro economic policies
Evaluate the use of policies to achieve economic objectives including macroeconomic stability. For example, how fiscal policy is used to achieve budgetary objectives; the role of independent central banks to achieve inflation targets; the use of supply-side policies to achieve economic growth.
Students should have an understanding of global factors influencing a country’s inflation rate; for example the impact of low wages in developing countries or the impact of a rise in commodity prices.

The AD/AS model introduced in Unit 2 should be applied in analysing and evaluating these policies. The distinction between short and long run aggregate supply curves should be considered, as well as the factors influencing each.

Students should be aware of the problems facing policy makers when applying policies, for example inaccurate information; risks and uncertainties.
Public expenditure
Give reasons for the changing size and pattern of public expenditure in different countries.

Examine how the state might tax revenues to improve human capital.
Students should understand the significance of differences in tax structures; public expenditure and public finances between countries. For example, students might examine the significance
of the differences of the size of the state sector between a developed economy such as the UK and a developing economy such as Malaysia.
Understand taxation: direct and indirect; progressive, proportional and regressive taxes.

Understand how governments might use pubic expenditure and taxation to reduce poverty.
Students should understand the possible link between changes in tax rates and tax revenues.
Public sector borrowing and
Public sector debt
Understand the significance of the size of public sector borrowing and debt.
Students should understand the significance of differences in the state of public finances between countries, for example with respect to attractiveness to foreign direct investment and incentives.

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