Government Economic Objectives
- Most governments pursue similar objectives for their national economies
Diagram: Government Economic Objectives
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
- As output is rising, more workers are needed, and high levels of employment are achieved
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
- The country could run out of foreign currency and it may have to resort to expensive borrowing from abroad
- If a balance of payments deficit occurs