Economic objectives
AQA also says:
Spec content: The main economic objectives of the government; Conflicts arising from the pursuit of government objectives; Other government objectives; Moral, ethical and sustainability considerations.
Students should be able to understand: the principal objectives: full employment, price stability, economic growth, balance of payments; that policies for one objective can negatively impact others; other objectives: reducing inequality, managing environmental change; how pursuit of objectives can conflict and affect groups negatively.
The Principal Economic Objectives
Governments typically pursue four main macroeconomic objectives:
| Objective | What it means | How measured |
|---|---|---|
| Full employment | Minimising involuntary unemployment — ensuring all who wish to work can find jobs | Unemployment rate (%); claimant count |
| Price stability (low inflation) | Keeping inflation low and stable — the Bank of England targets 2% CPI inflation | Consumer Price Index (CPI) % change |
| Economic growth | Increasing the output of the economy over time, raising living standards | % change in real GDP |
| Balance of payments equilibrium | Avoiding persistent large current account deficits or surpluses on trade | Current account balance (£bn) |
Additional objectives include: reducing income inequality; environmental sustainability (managing climate change, reducing carbon emissions); improving living standards broadly.
Policy Conflicts
Pursuing one objective can make it harder — or even impossible — to simultaneously achieve another. Key conflicts include:
- Growth vs inflation: rapid economic growth often generates inflationary pressure as consumer demand outpaces productive capacity. Policies to stimulate growth (lower interest rates, government spending) may increase inflation.
- Low inflation vs employment: policies to reduce inflation (raising interest rates) reduce consumer and business spending, slowing the economy and potentially increasing unemployment.
- Growth vs balance of payments: when the economy grows rapidly, consumers and businesses import more (machinery, consumer goods), worsening the current account deficit.
- Growth vs environment: economic growth — if achieved through resource-intensive production — tends to increase carbon emissions and environmental degradation. Sustainable growth is possible but slower.
- Reducing inequality vs growth: high taxes on wealth and income may reduce inequality but could also reduce incentives for investment and enterprise, potentially slowing growth.
Key Takeaways
- Four principal objectives: full employment, price stability, economic growth, balance of payments.
- Other objectives: reducing inequality, environmental sustainability.
- Key conflicts: growth vs inflation; low inflation vs employment; growth vs environment; growth vs BoP.
- No single policy can simultaneously achieve all objectives — governments must prioritise and accept trade-offs.