Decoding the macroeconomic aims of the government: A guide for IGCSE Economics students

Understanding the macroeconomic aims of a government is necessary for IGCSE Economics students. Macroeconomic objectives like economic growth, full employment, price stability, and balanced trade not only help with academic success but also provides insights into real-world economics

Key Macroeconomic Aims

1. Economic Growth

   Economic growth is defined as an increase in the production of goods and services in an economy. This growth is typically measured using Gross Domestic Product (GDP). Governments aim for constant economic growth because it generally translates to higher living standards for citizens of the country.

2. Full Employment

   Full employment means that all individuals willing and able to work are employed. It does not imply a zero unemployment rate.Full employment is crucial because it boosts national output and decreases poverty in the country. Unemployment rate is calculated as a percentage of labour force((Unemployment/Labour force)x100)).

3. Price Stability

   Price stability occurs when prices are kept stable in a country. It helps maintain the purchasing power of consumers. Price stability encourages spending and investment, crucial for economic growth, allowing firms to expand and allows people to spend money. This leads to an increase in injections in a country's circular flow of income. Some governments set an inflation rate of 2%

4. Balanced Trade(BOP)

   Balanced trade occurs when a country's imports and exports are approximately equal. If the amount of money a country spends on imports is greater than the money it gains through exports, it can lead to unstable currency value and budget deficits. A balanced trade approach allows governments to protect domestic firms while still fostering economic growth

5. Redistribution of income

   A government will seek to redistribute income from the rich to the poor. Governemnts do this by levying taxes and spending. The rich pay more tax than the poor and the money is used to provide unemployment benefits and housing benefits.Without the government providing, the poor may not be able to access these resources.

Impact of Government Policies on Macroeconomic Objectives

There are three government policies that are required in IGCSE economics.

1. Fiscal Policy

2. Monetary policy

3. Supply-side policies

Notes on government policies will be published soon!