The Five Macroeconomic Aims | Economics for GCSE/IGCSE - Year 11 PDF Download

Economic Growth

• Economic growth stands as a primary macroeconomic objective for most governments.
• Numerous developed countries aim for an annual growth rate of 2-3%, viewed as sustainable and less likely to trigger excessive demand-pull inflation.
• Political leaders frequently use it as a measure of the success of their policies and leadership.
• Economic growth yields beneficial effects on confidence levels, consumer spending, investment levels, job creation, income levels, living standards, and government finances.

A Table Highlighting Some of the Economic Growth Trends in the UK Since 1998

Low Unemployment

• When someone is without a job and actively seeking employment, they are classified as unemployed.
• The ideal unemployment rate varies based on the size of the economy. For instance, India may consider 6.5% acceptable, while Singapore targets a rate below 2%.
• An economy is deemed more efficient when it nears full employment, indicating optimal utilization of its workforce.
• Unemployment metrics reflect a focus on specific demographic segments, such as youth or ethnic/racial groups. For example, in 2021, Black unemployment in the USA stood at 8.7%, while White unemployment was at 4.7%.

• Unemployment and real Gross Domestic Product (GDP) share an inverse relationship. 
  • When the real GDP of a country grows, unemployment rates tend to fall. Conversely, during periods of real GDP decline, unemployment rates typically rise. 
  • Following the global financial crisis of 2007, the UK experienced a prolonged period of relatively high unemployment rates.

Low & Stable Rate of Inflation

• Most economies aim for a modest inflation rate around 2% measured by the Consumer Price Index (CPI)
• A low inflation rate is indicative of a healthy economy in terms of growth
• Inflation can stem from different sources like cost-push or demand-pull factors, each requiring distinct government interventions:
  • Policies addressing demand-pull inflation focus on managing overall demand in the economy
  • Policies tackling cost-push inflation concentrate on reducing production costs

• In the UK, a consistent deviation from the 2% target is considered unstable.
• An inflation rate ranging from 4-5% in April 2022 was viewed as unstable, leading to a decline in household purchasing power.
• Maintaining a low and steady inflation rate is crucial as it:
  • Enables firms to make confident decisions for future investments.
  • Provides price stability for consumers.

Balance of Payments Stability On The Current Account

• The Balance of Payments (BoP) of a nation documents all financial dealings between the country and the rest of the world.
• The Current Account primarily focuses on the financial transactions concerning the trade of goods and services.
• Governments strive for equilibrium in the Balance of Payments on the Current Account, where exports match imports.
• If exports surpass imports, it leads to a surplus in the current account; conversely, if imports exceed exports, it results in a deficit.
• Each scenario carries its own set of advantages and drawbacks, yet a current account deficit poses more challenges in the long term.
• Traditionally, the UK has maintained a slight deficit in its current account, yet as a percentage of GDP, this deficit has been negligible and not problematic.

• The trade deficit in the UK has been decreasing steadily since 2016.
• During this period, the value of exports has been increasing at a slightly faster rate compared to the value of imports.

The Redistribution of Income

• Income redistribution endeavors to mitigate income inequality within an economy.
  • Heightened income inequality can instigate social unrest and potentially lead to revolutions.
  • However, absolute income equality is not desirable as it diminishes incentives for work and education.
• Governments seek to redistribute income through taxing the affluent and offering welfare assistance to the impoverished.
• Unregulated capitalism tends to result in significant income inequality.
  • The affluent can consistently procure factors of production, consolidating ownership among fewer individuals who amass the majority of the world's wealth.
• Government intervention is necessary to sustain acceptable levels of income inequality.
• While absolute poverty is typically more severe in developing nations, even in advanced economies like Germany, a mere 1% increase in income inequality can significantly exacerbate relative poverty among households.