Government Impact on Business: Economic Objectives (Cambridge International IGCSE Business)

Government economic objectives

Spec point — 6.1.2 · • Identify government economic objectives, e.g. increasing Gross Domestic Product (GDP)

• Most governments pursue similar objectives for their national economies

Governments aim to achieve economic growth, low inflation, low unemployment and a positive balance of payments

Positive economic growth

• Positive economic growth is the increase in the amount of goods and services produced per head of population over a period of time

• The standard of living of the population is likely to increase with GDP growth

  • As output is rising, more workers are needed, and high levels of employment are achieved
  • Households can afford to buy more goods and services as most people become richer
  • Business owners expand their business as people have more money to spend on their products and revenue rises

Low levels of inflation

• Inflation refers to a general increase in prices and fall in the purchasing value of money over time
• Both the UK and US governments set their Central Bank an inflation target of 2%
• Central Banks have a range of tools they can use to achieve this target, such as base rates and quantitative easing

Low levels of unemployment

• Unemployment refers to the number of people without a job who are actively seeking and available for work
• Low unemployment increases national output, improves workers’ living standards and reduces government spending on welfare benefits

A healthy balance of payments

• The balance of payments is the relationship between the value of imports and exports over a period of time

• Exports bring foreign currency in to an economy, whilst imports lead to currency flowing out of it

  • If a balance of payments deficit occurs

    • The country could run out of foreign currency and it may have to resort to expensive borrowing from abroad
    • The exchange rate (the price of one country’s currency against another) is likely to fall