How The Economic System

Published Date: 02 Nov 2017

The way that a country handles these questions is based on their economic system.

There are four main types of economic systems present in the world: the traditional economy, the market economy, the command economy, and the mixed economy. But there are also unlimited amounts of variations of these systems.

A traditional economy is an economy that answers the questions based on their social customs and how the society has dealt with these questions in the past. A country's customs can differ greatly to that of a neighboring country so traditional economies vary from one another.

In a market economy, national and state governments play a minor role. Instead, consumers and their buying decisions drive the economy. In this type of economic system, the assumptions of the market play a major role in deciding the right path for a country’s economic development. Market economies aim to reduce or eliminate entirely subsidies for a particular industry, the pre-determination of prices for different commodities, and the amount of regulation controlling different industrial sectors. The absence of central planning is one of the major features of this economic system. Market decisions are mainly dominated by supply and demand. The role of the government in a market economy is to simply make sure that the market is stable enough to carry out its economic activities properly. The producer would create a product that they think would sell well to the public in hopes to make a profit. The question of how to produce is usually based on the producer's choice. They might decide to produce a product with more workers or they might decide to produce it more with machines and computers to save on labor costs. The question involving for whom to produce is based on the buyer who decides what they want or need and what price they are willing to pay for it.A market economy is great for motivating workers to work harder because they are only paid based on what they do. A worker can increase their income or profit by working harder and this chance to profit motivates them.

A planned economy is also sometimes called a command economy. The most important aspect of this type of economy is that all major decisions related to the production, distribution, commodity and service prices, are all made by the government. The planned economy is government directed, and market forces have very little say in such an economy. This type of economy lacks the kind of flexibility that is present a market economy, and because of this, the planned economy reacts slower to changes in consumer needs and fluctuating patterns of supply and demand. This type of economy is difficult for the individual because it is impossible for the government to know exactly what is best for each and every citizen. Planned economies don't help with their worker’s motivation because everyone is given the same amount of goods and the same standard of living.

Mixed economies may have a distinct private sector, where resources are allocated primarily by market forces, such as the grocery sector of the UK economy. Mixed economies may also have a distinct public sector, where resources are allocated mainly by government, such as defense, police, and fire services. In many sectors, resources are allocated by a combination of markets and panning, such as healthcare and, which have both public and private provision.

Decisions about resource allocation are necessary because we live in a world of scarcity. The problems of resource allocation are solved by the economic system at work in a country. In the case of construction, resource allocation has been strongly influenced by the public sector. What is produced, how it is produced and for whom can be determined by central government – and it was frequently but governments across Europe and specially UK now prefer to use a market system to answer the what, how and for whom questions. In general terms, therefore, it is possible to envisage two model systems. Each economic model brings together producers and consumers in different ways and each needs to be appreciated in order to understand how the universal questions about resource allocation are resolved.

FREE MARKET: 3 QUESTIONS:

What In a free market economy, consumers ultimately determine what will be produced by their pattern of spending (their voting in the marketplace).As far as producers are concerned, their decisions about what goods to produce are determined by the search for profits.

How Since resources can substitute for one another in the production process, the free market system must decide how to produce a commodity once society votes for it. Producers will be guided to combine resources in the cheapest possible way to achieve a particular standard or quality. Those firms that combine resources in the most efficient manner will earn the highest profits and force losses on their competitors. Competitors will be driven out of business or forced to combine resources in the same way as the profit-makers.

Whom This question is concerned with the distribution of goods after production.In a free market economy, production and distribution are closely linked, because incomes are generated as goods are produced. People get paid according to their productivity; that is, a person’s income reflects the value that the market system places on that person’s resources.

COMMAND ECONOMY: 3 QUESTIONS:

What In a centrally planned economy, the collective preference and wisdom of the central planners ultimately determines what is produced.

How The central planners decide on the methods of production. This means that they need to know how many resources to allocate to each industry, many of which interrelate.

Whom The relative rewards that people get are set by the central planners rather than the market. Thus market forces are not all important in determining factor rewards. There may be more opportunity to achieve some kinds of equality.

Scarcity means there is a shortage of economic goods and the needs/wants of people are not able to be fulfilled. For example, different kinds of fruit become scarce during certain times of the year. Scarcity also pinpoints a possible high demand for a product. There are limits to the quantity available of every resource that is utilized in the economy. This is what leads to all goods and services having a price. If there was no scarcity of resources, everything would be available for free.

Opportunity cost is related to scarcity as neither the consumer nor the producer has an unlimited resource of anything. Opportunity cost is important in economy because it helps in making decisions based on which choice has the highest value and which choice has to be given up. Opportunity cost is found by comparing the benefits of each choice and choosing the one with the highest value. Whatever choice you do not go with, is the opportunity cost.

Production Possibility Curve: Production Possibility curve shows the maximum combinations of goods and services that can be produced by an economy in a given time period with its limited resources. The production possibilities curve shows the limits on outputs of goods because the economy do not have unlimited resources. It also shows the trade-off we bear if more of one good is to be produced. Attainable levels of output are those that can be produced with the current resources (inputs) and technology. Unattainable levels of output cannot be produced with current resources and technology. Efficient levels of output occur when the maximum output of one good is being produced, given the output level of the other. Efficient output levels must lie on the production possibilities curve. Output levels are inefficient if it’s possible to produce more of everything using only your current resources and technology. Inefficient levels lie off of the curve and remain inside. Any point outside the curve is unattainable unless there is an outward shift of the PPC. This can only be possible if there is an improvement in the quantity and/or quality of factors of production. This is known as economic growth. It is a process of increasing the economy’s ability to produce goods and services.

(B)What is the present fiscal policy? How is fiscal policy affecting the economy? Do you agree with that fiscal policy?

The United Kingdom Budget 2012

Government will take in three areas:

a stable economy;

a fairer, more efficient and simpler tax system and

reforms to support growth.

Office of Budget Responsibility (OBR) revised its growth forecast from 2.1% to 1.7% for 2011, and to 2.5% for next year, which if met will push the UK close to its trend growth rate ,the rate at which many economic woes begin to ease. Office for Budget Responsibility says UK will avoid technical recession with positive growth in first quarter of 2012.The HM Treasury’s inflation outlook is that price rises this year will average between 4 and 5%, falling back to the desired core target rate of 2.5% in 2012.

The Treasury is also upbeat about the UK’s borrowing prospects, forecasting that borrowing for 2011 will fall to £146 billion, below the government’s own target and will shrink even further to just over £100bn in 2012-13. Again, all assuming a stable trend rate of growth. Inflation is expected to fall from 2.8% (2012) to 1.9% (2013)

In terms of taxation, while personal allowances will increase from £7,475 to £8,105 in April 2012, and to £9,205 by April 2013, the headline grabbing item is the scrapping of the top rate of tax of 50p and the introduction of a 45p top rate. Estimates suggest that the higher rate generated extra revenues of just £1billion, far less than was expected when it was introduced in 2009. This lends weight to the deep rooted belief that high marginal tax rates create a disincentive effect for the high paid. If true, revenues may actually rise as a result of the scrapping of the 50p.However, some 300,000 workers have been dragged into the 40% tax bracket as a result of a reduction in the level of taxable income that triggers the movement from the basic tax rate, the current 40% rate which starts at an income of £42,475, will now start at £41,450.The main rate of Corporation tax will be reduced by 2%, from 25%, falling eventually to 23%.The Government’s ‘Plan for Growth’, released late last year, outlined a wide range of reforms to boost the UK’s competitiveness. The UK ranked 10th in the 2011-12 Global Competitiveness Index, two places higher than the year before. In terms of fuel duty, a new fair fuel stabilizer will replace the existing fuel escalator, and 1p will be removed from fuel duty. The exclusion of tax allowances for those over 64 was surprising and a flat rate pension of £140 per week was decided for those who have worked for 30 years. In terms of support for enterprise, numerous business regulations will be removed, along with increases in tax relief and business rate relief for small businesses. In addition, the Treasury announced the creation is 21 special enterprise zones, and the introduction of new export credits for manufacturers, and support for science and technology research. In addition, the funding of technical colleges would be extended. In terms of the environment, a new Green Investment Bank will be launched, and a carbon price floor will be introduced for the energy sector later this year. In addition, railways will get an injection of £200 to improve the regional rail infrastructure, and more money will be made available for road maintenance. The United Kingdom reported a Government Budget deficit equal to 7.80 percent of the country's Gross Domestic Product in 2011.

Factors That Affect the Size of the Budget Deficit

1. Economic cycle: During a recession it is likely that there will be an increase in the budget deficit. This is because:

Tax revenues will be lower.

less people are working therefore income tax will be less.

Consumer spending is lower therefore VAT receipts are lower.

Government spending will increase.

More will be spent on unemployment and welfare benefits.

2. Level of Interest Payments: Higher bond yields will increase interest payments and the budget deficit.

3. One off Receipts: A governments budget balance may be improved through one off payments, such as receiving income from privatization of state owned assets.

4. Structural deficit: If the government commit to investing in infrastructure, there will be higher borrowing. UK spending increased in the early 2000s contributing to budget deficits.

Fiscal policy involves the Government changing the levels of Taxation and Government Spending in order to influence Aggregate Demand (AD) and therefore the level of economic activity.

(AD is the total level of planned expenditure in an economy (AD = C+ I + G + X – M)

The purpose of Fiscal Policy:

Reduce the rate of inflation, (UK government has a target of 2%)

Stimulate economic growth in a period of a recession.

Basically, fiscal policy aims to stabilize economic growth, avoiding the boom and bust economic cycle.

As the recovery from the 2008-09 recession towards the steady state has been very slow the current fiscal policy of UK aims at achieving the macroeconomic stability, supporting the pro-business and low carbon growth, achieving fairness and providing opportunities for all and in protecting the public services. The programs and activities that the government can implement to achieve these are limited, however, by its budget constraints. Current forecasts of spending targets, revenues and public deficit are set in the context of slow recovery after the recession that lasted for seven quarters from the second quarter of 2008 to the 4th quarter of 2009. Expansionary fiscal and monetary policies taken by the government and the Bank of England have taken economy out of the slump but these are projected to raise the debt ratio to 78 percent of GDP by 2015 and exerting an inflationary pressure in the economy (OBR and HM-Treasury, 2011). While these short run policy measures were taken to stimulate the economy so that it could return to its long run equilibrium path, what will happen in the next 80 years from such short run policy measures are determined more by the broad parameters that guide choices of households, firms and traders in the economy.

Expansionary fiscal policy involves government attempts to increase aggregate demand. It will involve higher government spending or lower tax. Higher government spending will increase aggregate demand and lead to higher economic growth. Lower taxes should increase disposable income of consumers leading to higher levels of consumer spending. This should also increase aggregate demand and could lead to higher economic growth. Fiscal policy can also lead to inflation because of the higher demand in the economy.

(C)What is the present monetary policy? How is monetary policy affecting the economy? Do you agree with that monetary policy?

MONETARY POLICY DEFINITION

Monetary policy involves altering base interest rates, which ultimately determine all other interest rates in the economy, or altering the quantity of money in the economy. Many economists argue that altering exchange rates is a form of monetary policy, given that interest rates and exchange rates are closely related.

UK MONETORY POLICY:

The Bank of England’s Monetary Policy Committee is adhered with the responsibility for monetary policy in the UK. The MPC has nine members, four of whom are appointed by the Chancellor. The MPC has one goal that is to hit its inflation target of 2%. The inflation target is symmetrical because a rate of inflation below the target is considered as damaging as a rate of inflation above the target. Changing the official base rate, which alters the cost of borrowing across the economy, is the most visible tool used by the MPC. The MPC's team of experts meets each month to discuss current and future monetary policy options, and set a rate which they believe will steer the economy towards achieving the target inflation rate.

The rate set by the MPC is the rate that the Bank of England will charge in the money markets for short-term loans to other banks or financial institutions. Other rates of interest in the economy, such as mortgage and credit card rates, will adjust in line with changes to the official rate. Interest rates are set so that the inflation target can be met in the future. It takes up to two years for a rate change to affect inflation, so the Bank of England must try to predict the state of the economy two years in advance. The Bank of England’s policy interest rate is at a record low, 0.5%. The Bank launched the ‘National Loan Guarantee System’ in March this year, which reduces the cost of borrowing from banks for smaller businesses. Similarly, the Bank launched the ‘Funding for Lending Scheme’ in July, which enables banks to borrow cheaply from the central bank so they can lend more, and at lower interest rates, to businesses and consumers.

In recent years. interest rates have been adjusted to reflect changing inflationary pressure, and general macro-economic conditions.

Time line

1999 – 2000

Rates were relatively high at 6% to restrict demand

2000 – 2003

In order to stimulate demand, between 2000 and 2003 rates were pushed down to what was then their lowest level for 25 years.

2003 – 2007

Rates were pushed up into a neutral zone at around 5% and edged towards the restrictive zone by the middle of 2007.

2008 – 2011

Rates were pushed down to a record low of 0.5% to stimulate household spending in the wake of the crunch time.x

Quantitative easing

Quantitative easing is a method of introducing new liquidity into the economy when interest rates are very low and approaching zero.

Evaluation of monetary policy

The advantages are:

The Bank of England’s Monetary Policy Committee is independent from government and can make decisions free from political interference.

Interest rates can be adjusted on a monthly basis, which contrasts with discretionary fiscal policy which cannot be adjusted at such regular intervals.

While the full effects of interest changes may not be experienced for up to a year, there is often an immediate effect on confidence. The time-lag on output is estimated to be around one year, and on the price level, around two years.

The disadvantages

There are still time lags to see the full effects, and there are some negative effects.

Raising interest rates can negatively effect on investment spending and the housing market, and the exchange rate and hence the balance of payments.

There is also the problem of the dual economy - are high rates set for the booming service sector, or low rates for the depressed manufacturing and export sector?

The money supply is difficult to control in practice, so controlling interest rates are preferable.

Interest rates may fall to very low levels during a deep recession, and while the demand for credit may rise, the supply may become trapped in the system, known as the liquidity trap.

D (i) Explain the behavior and competitive strategies employed by any organization

In business, competitive advantage refers to possessing advantage over competitors. This advantage is that which comes as a result of smart and concise strategic plans as compared to other factors. Success and failure of a company is highly dependent on competition and this implies that he way competition is handled is very crucial to the business process. When an organization creates and sustains profits that exceed the average among competitors, it is said to possess competitive advantage. Business firms today are keen on developing strategic plans that will efficiently give them advantage to their competitors.

General Motors Company

The company usually referred as GM has its headquarters in Detroit, Michigan. It manufactures trucks and cars in 34 countries and employs 244, 500 people around the world. It offers vehicle servicing in 140 countries around the globe). It's owned partially by the Canadian government with the US treasury owning the majority of shares of approximately $57.6 billion. There has been a plan by the company to issue IPO (Initial Public Offering) by 2010. The company has been a leader in the automakers industry which has faced monumental challenges in the recent past especially in the face of the global crisis. One challenge that has been cited as a major challenge is the rising fuel prices and pressures emanating from global warming agitation. The challenges faced by the company can be used as a platform which the company can build strategies and emerge as winners through well strategized innovations. Some of the factors that GM ought to address in these recent times include the innovation of more user friendly vehicles that will be appealing to customers, costs and unions.

Strategies used by the company

Decentralized control

Proper market concept

Expedient finance controls

Quick technological innovation

Decentralized control for GM gives it the advantage of quick decision making across its branches which are distributed all over the globe. The managers who run branches in the global branches are empowered to evaluate and make critical decisions on behalf of the company. This ensures that GM has global profit centers which derive motivation from the head office. For GM to achieve its global goals, it has embraced up to date marketing analysis that keeps it informed about customer wishes. The company is currently engaged in high profile efforts of producing environmentally friendly autos in line with keeping balance in global warming. In this effort, GM is in the process of producing alternate vehicles (electric, fuel celled hybrid and ethanol). The company major strategy is to be the world leader in innovation thereby giving it advantage. It was the first company to develop an electr4ic vehicle in 1992 and since it has the financial capability, analysts argue that GM competitive advantage lies in its ability to produce innovative alternative cars.

Toyota Company

The company, founded in 1937, is headquartered in Toyota City, Aichi and Nagoya, Tokyo. The company is rated as the world's largest automaker. It employs approximately 320,808 people worldwide .To emerge as dominant leader in the world automobile industry, the company developed 14 strategies referred to the Toyota way which are seen as the fuel behind the company's successes. The 14 principles includes using long term philosophies to make decisions, bringing problems to the surface, using pull systems to avoid over production, leveling out the work load, quality the first time, standardize tasks and using visual control to ensure that no problems are hidden. The company also embraces use of acknowledged and sure technology, invests in its workforce, and helps improve its partners, make decisions through consensus and relentless self-examination. The overall production process is maintained at its highest quality level to ensure that no problem comes out of the product. In Toyota, one employee can stop a production process in case of noticing a mistake. The innovators in Toyota are encouraged to learn by seeing and this assists them to stay in touch within manufacturing and design concepts necessary for propelling the company forward. The company has a broad and open system where employees are motivated to think outside the box to help in improving the production. More time is spent in developing the correct process rather than the product and this enables the company to ensure a continuous production of quality vehicles. Strategies employed are:

Efficient marketing strategy

Product differentiation

During its entry into the US market in 1970's the company introduced low cost automobiles which competed favorably with the major companies General Motors. After establishing itself in the market, the company started producing different cars that would adequately serve different market segments, in 1989, manufactured the Lexus cars to compete in the luxury market with Mercedes and BMW.

The global automobile industry is highly competitive and this requires companies to adopt rigorous strategies to keep p in business. The rigor involved can cost the companies massive resources like in the case of Toyota which recorded $4.4 billion loss in its financial year 2009. To keep ahead of the competition, the companies have adopted almost similar strategies aimed at giving them advantage. Toyota's main advantage is in product differentiation. Toyota has invested in technology and is able to roll out new products in the market faster than its competitors. It's investment in robots and financial services also shields it from risks associated with failure in the automobile industry. GM's major strategy must remain innovation of great quality products that will match its business image globally. Analysts argue that customers expect the company to release products that can go beyond others in addressing major challenges such as global warming and skyrocketing gas prices.

D (ii) Discuss the role of regulatory bodies like competition commission

The Competition Commission is an independent public body in the UK which conducts in-depth inquiries into mergers, markets and the regulation of the major regulated industries. The Competition commission helps to ensure healthy competition between companies in the UK for the benefit of companies, customers and the economy. Inquiries are always initiated following a concern referred to us by another authority such as the UK Office of Fair Trading. It also investigates issues referred to it by the sector regulators for communications, gas and electricity, water, rail, airports, postal services or by the Secretary of State for Business, Enterprise and Regulatory Reform. . It replaced the Monopolies and Mergers Commission in April 1999.

The aim of the Financial Services Authority (FSA) is to promote efficient, orderly and fair financial markets. It was set up by the Government which is responsible for the overall scope of the FSA’s regulatory activities and for its powers.

The FSA regulates most financial services markets, exchanges and firms. It sets the standards that they must meet and can take action against firms if they fail to meet the required standards.

The Financial System

The Financial System is ruled by the Financial Services and Markets Act 2000 (FMSA).

The FSA is an independent, non-government owned body, given statutory. The FSA is accountable to Treasury Ministers and, through them, to Parliament. It is operationally independent of Government and is funded entirely by the firms it regulates. The FSA is an open and transparent organisation and provides full information for firms, consumers and others about its objectives, plans, policies and rules.

The FSA has three main objectives:

Promoting efficient orderly and fair markets.

Helping retail consumers achieve a fair deal.

Improving our business capability and effectiveness

The Financial Services and Markets Act has four statutory objectives:

Market confidence: maintaining confidence in the financial system

Public awareness: promoting public understanding of the financial system

Consumer protection: securing the appropriate degree of protection for consumers

The reduction of financial crime: reducing the extent to which it is possible for a business to be used for a purpose connected with financial crime

The Office of Fair Trading (OFT) is the UK's consumer and competition authority. Its mission is to make markets work well for consumers. The OFT encourages businesses to comply with competition and consumer law and to improve their trading practices through self-regulation, it acts decisively to stop hardcore or flagrant offenders, it studies markets and recommending action where required, it empowers consumers with the knowledge and skills to make informed choices and get the best value from markets, and helping them resolve problems with suppliers through Consumer Direct. The OFT is a non-ministerial government department established by statute in 1973. The OFT cannot provide advice or assistance to individual consumers or traders.

UAE ECONOMY:

The UAE has an open economy with a high per capita income and a sizable annual trade surplus. Successful efforts at economic diversification have reduced the portion of GDP based on oil and gas output to 25%. In April 2004, the UAE signed a Trade and Investment Framework Agreement with Washington and in November 2004 agreed to undertake negotiations toward a Free Trade Agreement with the US, however, those talks have not moved forward. The country's Free Trade Zones - offering 100% foreign ownership and zero taxes - are helping to attract foreign investors. The global financial crisis, tight international credit, and deflated asset prices constricted the economy in 2009. UAE authorities tried to blunt the crisis by increasing spending and boosting liquidity in the banking sector. The crisis hit Dubai hardest, as it was heavily exposed to depressed real estate prices. Dubai lacked sufficient cash to meet its debt obligations, prompting global concern about its solvency. The UAE Central Bank and Abu Dhabi-based banks bought the largest shares. In December 2009 Dubai received an additional $10 billion loan from the emirate of Abu Dhabi. The economy is expected to continue a slow rebound. Dependence on oil, a large expatriate workforce, and growing inflation pressures are significant long-term challenges. The UAE''s strategic plan for the next few years focuses on diversification and creating more opportunities for nationals through improved education and increased private sector employment.

The United Arab Emirates has a very broad and expansionary fiscal policy that promotes high growth for the nations GDP. The rulers of the UAE effectively control most utilities including the most important oil. This has been the source of the UAE's ability to invest in numerous projects in the last few years in order to diversify their economy.

The overall indications of the UAE's use of government revenue to invest in the capital supply of aviation would suggest a very hands on fiscal policy that is geared towards national growth and rational self-interest by :

stabilizing prices.

keeping unemployment low.

promoting high and sustained economic growth.

High and sustained economic growth

The evidence is overwhelming that the UAE employs Hands-on fiscal policy by the fact that Dubai's Sovereign Wealth fund financed and owns the Emirates Airlines. A more Hands-off policy would have allowed and encouraged private firms and individuals to take the lead and for the government to impede as little as possible. In fact, there probably would have been much more turmoil and complications with this approach but the separation of the economy from state would be a much healthier long-term goal. The point is conceded that the overall goal of high and sustained economic growth will be achieved by Dubai using Hands-on fiscal policy, but the argument remains that the long-term ramifications of free market fiscal policy is the more desirable systemic process that should be pursued.

Low unemployment

By using the Hands-on approach, the UAE has used the revenues gained by such utilities as oil to inject capital into the aviation market to meet the demand of more and more fliers. The production of such capital has led to even more demand in the skilled labors market increasing the need for more airline pilot’s mechanics and construction workers. The free market application would have had much of the same desired affects, such as keeping unemployment low and increasing demand in a number of labor markets

Stable prices

Price stability for the consumer aviation market will be achieved if not lowered by the competition implemented by Emirate’s cash fueled entrance into the market. Prices will rise in the skilled labor market as the need for airline mechanics will rise, and also in the materials markets where building materials such as concrete and steel are sure to rise. The Hands-on policy of Dubai will undoubtedly cause aggregate inflation to rise. This is a short-term cost in order to achieve the long-term goals of economic success.

Monetary Policy of the UAE:

The Government of the UAE employs an active expansionary monetary policy that is dedicated to growing the economy and producing the desired economic goals of stable prices, low unemployment and high and sustained economic. Dubai (UAE) is planning to sell more bonds in order to finance a more diverse economic strategy.

With more money "in hand", UAE will move forward with plans to increase real GDP by increasing government spending on things such as infrastructure and investments in the aviation market. This is a strategy that is in lock-step with government’s fiscal policy in order to achieve the economic goals. While the goal remains the same, the implications are more severe and potentially more disastrous. As with fiscal policy, we gain a better understanding of how this may or may not affect the three economic goals by dichotomizing the subject into Hands-on(active) monetary policy, or Hands-off(free market) monetary policy. Again, it is understood that the Hands-off monetary policy in essence means little or no government intervention which is ultimately a contradiction of monetary policy.

Economic growth

Buy selling bonds the UAE is stating implicitly that it believes that by acquiring the cash and issuing the bond to the purchaser at a certain interest rate, it can turn around and invest the cash into the channels it sees fit, whether this be infrastructure or aviation, and then payback the debt when the investment turns profitable. The plan faces many contingencies and hinders on the ability of the UAE to take full advantage by putting the cash to work in the most efficient way possible, and if history is any indicator UAE’S track record of risky bets is not a sure thing. A free market monetary policy would, require that no debt be issued; rather sufficient cash to invest would have to be literally "in hand" before forward motion could begin on any project, regardless of how profitable the investment is deemed to be.

Low unemployment

In a free market economy, implementing monetary policy to achieve particular results, for example changing the money supply by selling more government issued bonds to achieve higher output of GDP. The UAE could never be confused with a small household, with vast future wealth coming from a seeming less endless supply of oil. By using the Hands-on theory, UAE will sell government issued bonds and use the cash to build roads and airports, putting its citizens to work immediately, effectively keeping unemployment low and GDP high.

United Arab Emirates Government Budget

The United Arab Emirates recorded a Government Budget surplus equal to 2.90 percent of the country's Gross Domestic Product in 2011. Government Budget in the United Arab Emirates is reported by the Central Bank of the UAE. Historically, from 2000 until 2011, the United Arab Emirates Government Budget averaged 1.35 Percent of GDP reaching an all-time high of 21.08 Percent of GDP in December of 2008 and a record low of -13.01 Percent of GDP in December of 2002. Government Budget is an itemized accounting of the payments received by government (taxes and other fees) and the payments made by government (purchases and transfer payments). A budget deficit occurs when a government spends more money than it takes in. The opposite of a budget deficit is a budget surplus. This page includes a chart with historical data for the United Arab Emirates Government Budget. The Cabinet of the UAE approved the draft Federal Budget for 2012, which amounted to Dh41.4 billion in revenue and an expenditure of Dh41.8 billion. The budget focuses on the social services sector with an allocation of Dh19.7 billion, followed by the education sector with an allocation of Dh8.2 billion.