Investment and risk

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This is considered desirable within an economy but it is virtually impossible nowadays to have zero unemployment. It is often felt that for an economy to run efficiently and flexibly in the face of chang...

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Even distribution of wealth

This could either refer to individuals or be on a regional basis. For example, the Government may decide that there should not be particularly rich or particularly poor regions within the country.

The main conflicts arise between inflation and the balance of payments on the one hand and full employment and economic growth on the other. For instance, if policies lean toward creating a hi...

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Next we will now consider some Government policies used and their impact on economic and political objectives.

Interest rates can be used as a tool by a national Government or where authority is granted to its central bank (such as the Bank of England) in order to control inflation. As we shall see later, inflation can be influenced by a number of factors both arising from the state of the domestic economy and world markets. Through the Government’s stated policy objectives, measures will be taken for example, increase interest rates to combat rises in inflation or, if an economy is stagnating, lower them to encourage new demand and growth.

Theoretically, an increase in the money supply will also have inflationary effects as people will require the level of money that they hold in relation to other income and assets to remain the same. Increases in the money supply can lead to individuals attempting to restore their initial demand for money by buying financial assets. As asset prices increase, they will be able to afford to demand further goods and services thus causing inflation.

There is a correlation between the demand for and supply of money with interest rates. If interest rates rise, the demand for money reduces, whilst lowering rates will have ...

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Political conflict or unrest could seriously destabilise confidence in a country which could lead to an otherwise relatively stable economy becoming unattractive to investment. For instance, the terrorist attacks on the USA in 2001, caused widespread concern about a worldwide recession. This prompted the major central banks to drop interest rates to bolster demand.

Regulation

Political influences and policies to regulate financial services should ideally enable markets to operate within structured guidelines. This can in turn, allow consumers to become more educated and operate within an environment of confidence and protection. In addition, strict regulation will reduce the risks of financial crime. A balance needs to be drawn between such regulation and the continued ability of markets to operate freely.

In recent years in the UK, there has been considerable regulation imposed upon the financial services industry often in reaction to events that have resulted in losses to consumers.