Cambridge International as and a level Economics Ebook

Tinbergen’s rule: 
for every policy aim there must be at 
least one policy measure.
KEY TERM
269
Chapter 10: Government macro intervention 

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trade cycle, but these measures sometimes reinforce the 
trade cycle rather than acting 
counter-cyclically
.
Counter-cyclically: 
going against the fluctuations in 
economic activity.
KEY TERM
As well as there being a delay before households, workers 
and fi rms react to policy measures, there is the possibility 
that they may not respond in the expected way. For 
example, during an economic boom a central bank may 
raise the rate of interest in the expectation that it will 
encourage saving and discourage borrowing. If, however, 
households and fi rms are optimistic about the future they 
may continue to borrow and spend.
Some elected governments may be tempted to introduce 
popular policy measures when elections are approaching. 
Measures such as an increase in government spending on 
pensions may win votes but may not necessarily improve 
economic performance. Government policy measures may 
also be infl uenced by powerful pressure groups and, as 
mentioned in the previous chapter, there is the possibility 
of government corruption. For instance, past attempts to 
reduce class sizes and increase resources in education and 
improve health care in Honduras were hindered by corrupt 
government offi
cials who stole money from government 
budgets. Th
is led to the country coming 140th out of 177 
countries in the 2013 Corruption Perception Index. Th
is 
index scores countries on a scale from 0 (highly corrupt) to 
100 (very clean). Honduras scored 26.
Equilibrium and eff iciency: 
The key concept of eff iciency 
is clearly linked to government failure. When a government 
implements a policy measure, it is seeking to improve 
economic eff iciency but, as explained in this chapter, there 
are a number of reasons why the measures may worsen 
rather than improve the economy’s performance.
KEY CONCEPT LINK