Government Objectives (Edexcel IGCSE Business)

Government Economic Objectives

• 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

Diagram: Government Economic Objectives

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

The government's macroeconomic objectives

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

The impact of the objectives on business

Examples of Government Action Aimed at Meeting Their Macroeconomic Objectives