Government Objectives (Edexcel IGCSE Business)

Government Economic Objectives

Spec point — 1.6.1

• Most governments pursue similar objectives for their national economies

  • They use a mix of government spending and taxation in order to achieve these objectives

• The government has many policy options available that can be used to meet the targets of their macroeconomic objectives

  • Any policy action taken is likely to have a direct impact on business

Government economic objectives

Governments typically look 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

  • A balance of payments deficit occurs when the money spent on imports is higher than the money received from exports
  • A balance of payments surplus occurs when the money received from exports is higher than the money spent on imports

• If a country has an ongoing deficit, it means there is possibly less support for domestic business (imports preferred)

  • The country's residents may need to borrow more money to fund these imports

• Maintaining a healthy balance of payments helps to avoid some of these issues

Examples of government actions aimed at meeting macroeconomic objectives

Exam Hint In the exam you may be asked to explain how a change in government objectives might affect businesses. Remember, explain questions do not require a contextualised response.