What governments aim for, and where the aims clash Cambridge IGCSE Economics (9–1) revision
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In plain words
A government wants several things from the economy at once: more output, jobs for all, steady prices, healthy trade with other countries, a fairer share of income and a protected environment.
The trouble is that pushing harder on one can make another worse. Running an economy is a matter of trade-offs.
6 things to know
- The main macroeconomic aims: economic growth, low unemployment (full employment), low and stable inflation, balance of payments stability, redistribution of income, and environmental sustainability.
- Governments often set a target for an aim, such as an inflation rate of 2% a year.
- Low unemployment against stable prices: more spending creates jobs but can pull prices up.
- Economic growth against the environment: more output can mean more pollution and faster use of resources.
- Growth and employment against the balance of payments: as incomes rise, people buy more imports.
- Inflation against the balance of payments: if prices rise faster than in other countries, exports become less competitive.
Tips and tricks
- When a question asks about a conflict, name the two aims and give the link between them in one chain: "more spending, so more jobs, but higher demand, so higher prices".
- Not every pair conflicts. Growth usually helps employment, because more output needs more workers.
It lands in your notebook with its questions as flashcards.
What governments aim for, and where the aims clash: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
Which is a macroeconomic aim of government?
Governments aim for full employment, steady prices and growth.
Which pair of aims is most likely to conflict?
Higher demand creates jobs but can also push prices up.
A country's incomes rise quickly. Why might its balance of payments worsen?
Some of the extra income is spent on goods from abroad.
Rapid economic growth is most likely to conflict with
More production means more pollution and resource use.
A government sets a target of 2% for the annual rise in prices. Which aim is this?
A steady, low rate of price rises is the aim of price stability.
Quiz
5 questions
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Worksheet
3 questions, 8 marks. Write your answers on paper, then check them.
What governments aim for, and where the aims clash
Cambridge IGCSE Economics (9–1) 0987 · 8 marks · papermunch.org
Name ______________________________ Date ______________
State three macroeconomic aims of a government.[2]
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Any three of: economic growth, low unemployment, low and stable inflation, balance of payments stability, redistribution of income, environmental sustainability.
Explain why a policy to reduce unemployment might increase inflation.[3]
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Cutting unemployment usually means raising total demand. More people in work have more to spend, and if demand grows faster than output can, prices are pulled up.
Explain how economic growth can conflict with protecting the environment.[3]
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Growth means producing more goods and services, which uses more energy and raw materials and creates more pollution and waste.
Answers: What governments aim for, and where the aims clash
- 1. Any three of: economic growth, low unemployment, low and stable inflation, balance of payments stability, redistribution of income, environmental sustainability.
- 2. Cutting unemployment usually means raising total demand. More people in work have more to spend, and if demand grows faster than output can, prices are pulled up.
- 3. Growth means producing more goods and services, which uses more energy and raw materials and creates more pollution and waste.