The Impact of Fiscal Policy on Macroeconomic Objectives (Edexcel IGCSE Economics)

The net profit of firms increases → investment by firms increases → output of the economy expands → more workers are required income per capita increases

Economic growth increases

Inflation rises due to increased short-term investment spending

Unemployment may decrease as output rises, which requires more workers

Current account: exports may increase due to new investments leading to better quality output, but imports may also rise due to higher income households buying imports

There may be more damage to the environment as industrial output increases

More building firms employ workers → household income increases → consumption increases

Economic growth increases

Inflation pressures rise

Unemployment may decrease as construction employers hire more workers

The current account deficit may worsen as households spend more on imports

Households pay more tax → discretionary income reduces → consumption reduces → the pace of economic growth slows down

Economic growth slows down

Inflation eases

Unemployment may increase as output is falling and fewer workers are required

A current account surplus may occur if households purchase less from abroad (imports)

Environmental protection improves as economic growth slows down

Public sector wages stagnate or reduce → consumer confidence falls → consumption decreases

Economic growth slows down

Inflation eases

Unemployment may increase as output falls

The current account may improve as households spend less on imports

There is less government demand for goods and services → less income for firms → output and profits decrease

Economic growth slows down

Inflation eases

Unemployment may increase as output falls

Less corporation tax is available for redistribution

A current account surplus may occur if imports are reduced

Environmental damage may fall as the level of output in the economy falls