Briefly Outline the Ways in Which Governments Seek to Constrain

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The Answer is The main mechanisms used by government to constrain or stimulate the domestic economy are via fiscal or monetary policy. Ultimately their goal is to seek to grow the economy at a sustainable rate without experiencing significant fluctuations (up to down or down to up) in the business cycle within short periods of time. Fiscal policy arises from the use of taxation and government spending policies to increase or reduce the funds available to the population, which will have a resultant impact on economic growth. The policies introduced may be broadly-based, designed to impact across the whole population, or may be selective, whereby specific target groups are identified. Monetary policy initiatives by government involve the manipulation of interest rates to control the amount of money in circulation as a means of either stimulating or slowing down the economy. A decrease in interest rates will tend to encourage spending and borrowing activities which are of a stimulatory nature to the economy. An increase in interest rates however, will likely have the effect of restricting borrowing and spending patterns thus having the impact of slowing economic growth.
Governments must also be aware of the influence of the global economy and the roles of foreign governments when seeking to minimise the excesses of local market cycles, particularly for relatively small economies such as Australia.

Briefly Outline the Ways in Which Governments Seek to Constrain

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