AQA GCSE Economics: Government objectives, conflicts and ethical considerations (8136) – Revision Notes

These notes condense section 3.2.2.1, Economic objectives of the government, from the AQA GCSE Economics (8136) specification for first teaching from September 2017. The specification has no tiers. When you need fuller explanations or longer worked examples, go to the study guide. Then try the practice set, the AQA GCSE Economics hub, the checklist and the free diagnostics. The numbers here are made up for practice.

The four principal objectives

Objective	One-line definition	Measure
Full employment	Nearly everyone who wants work has a job	Unemployment rate
Price stability	Low, steady inflation	CPI inflation rate
Economic growth	Rising real output over time	Percentage change in real GDP
Balance of payments	Money in and out of the country roughly matches	Current account balance

Why each objective matters

• Full employment: jobs give income, and idle workers mean lost output and higher benefit spending.
• Price stability: steady prices let households and firms plan. Fast-rising prices erode buying power.
• Growth: more output can raise living standards and tax revenue.
• Balance of payments: a large, lasting deficit must be financed by borrowing or selling assets.

Formulas

Measure	Formula
Unemployment rate	unemployed / labour force × 100
Inflation rate	(new CPI − old CPI) / old CPI × 100
Growth rate	change in real GDP / starting real GDP × 100
Current account balance	total exports − total imports (goods and services)

Below zero is a deficit. Above zero is a surplus.

Quick check on percentage points

If unemployment falls from 8.0% to 6.2%, the change is 1.8 percentage points. As a percentage change it is 1.8 / 8.0 × 100 = 22.5%. Use percentage points when comparing two rates, and say which you mean.

Method in steps: a measurement question

1. Write the formula.
2. Substitute the figures.
3. Calculate and give the unit (percent, or currency).
4. Say what the result means (deficit, rising prices, and so on).

Worked reminder (Country D, illustrative)

• Unemployed 2.1 million, labour force 28 million: 2.1 / 28 × 100 = 7.5%.
• CPI 100.0 to 102.5: 2.5 / 100 × 100 = 2.5% inflation.
• Exports: goods 90, services 60, total 150. Imports: goods 120, services 38, total 158. Balance = 150 − 158 = −8, a deficit.

Conflicts between objectives

Policy	Helps	May harm
Cut interest rates	Growth, employment	Inflation, balance of payments
Raise interest rates	Price stability, balance of payments	Growth, employment
Boost spending to create jobs	Employment, growth	Price stability, balance of payments
Tight limits on pollution	Environment	Growth, jobs, exports
Higher taxes on top earners	Reducing inequality	Incentives, possibly growth

Chain of reasoning

Policy, first effect, knock-on effect, objective harmed. Example: higher rates, borrowing dearer, spending and investment fall, demand slows, firms cut jobs, unemployment rises.

Worked evaluation paragraph (Country E, illustrative)

Country E has 9% unemployment and 1% inflation. The government cuts rates. Cheaper borrowing raises spending and firms hire, so unemployment should fall. However, demand may also pull prices up and draw in imports, worsening inflation and the current account. Because inflation starts very low, the extra inflation is a small cost compared with 9% of workers without a job, so on balance the policy looks sensible in the short run. It would be riskier if inflation were already high or the economy were close to full capacity.

Why the balance of payments suffers when demand rises

Higher incomes lead to more spending on imports. Exports depend on demand abroad, so they do not rise at the same time.

Evaluation prompts

Be ready to say whether a conflict is certain or only possible. Cutting rates does not always raise inflation, for example if the economy has plenty of spare capacity. Words such as “may”, “if” and “depends on” show you are judging, not just listing.

• Which objective is in the worst state to start with?
• Short run or long run?
• Which group bears the cost?
• Could another policy do the job with fewer side effects?

Other objectives

Reducing inequality

• Taxes: progressive (average rate rises with income), regressive (average rate falls as income rises).
• Spending: benefits and public services such as education and health.
• Conflict: high tax rates may weaken incentives. Benefits cost money.

Worked reminder. A sales tax of 10% on all spending. Household S has income 15,000 and spends 80% of it, 12,000, so pays 1,200, which is 8% of income. Household T has income 80,000 and spends 40%, 32,000, so pays 3,200, which is 4%. Lower earners pay a bigger share, so the tax is regressive in effect.

Managing environmental change

• Aim: reduce pollution, protect resources, slow harmful climate change.
• Tools: pollution taxes, regulation, subsidies for clean technology, spending on public transport.
• Conflicts: job losses in polluting industries, higher costs for firms and households, less competitive exports, possible slower growth now.

Key terms

Term	Meaning
Real GDP	Output measured at constant prices, so price rises are removed
Current account	Trade in goods and services plus some income flows with the rest of the world
Negative externality	A cost of an activity that falls on a third party
Progressive tax	Takes a larger percentage of higher incomes
Regressive tax	Takes a larger percentage of lower incomes
Value judgement	A view about what ought to be, not a fact

Linking the environment to the four objectives

• Growth: a carbon-heavy growth path may bring higher output now and damage later.
• Employment: new green industries can create jobs, while old industries lose them.
• Prices: pollution taxes may raise costs, which firms pass on in prices.
• Balance of payments: exports of clean technology may rise, but costly rules may hurt exporters.

How pursuit of an objective harms groups

Policy	Group harmed	How
Higher interest rates	Borrowers	Higher repayments
Lower interest rates	Savers	Less interest income
High inflation	Savers, people on fixed incomes	Buying power falls
Growth based on heavy industry	Nearby residents, future generations	Pollution, resource use
Strict environmental rules	Workers in affected industries	Job losses

Worked reminder. A saver has 20,000. Interest of 5% pays 1,000 a year. If the rate falls to 3%, interest is 600. The saver loses 400, which is 40% of their interest income.

Moral, ethical and sustainability considerations

• Moral and ethical: questions of fairness and responsibility. Is it fair that low-income households carry more of the cost? Should polluters pay? Is cheap output worth poor working conditions?
• Sustainability: using resources so that people today are supported without leaving later generations with less to rely on.
• A value judgement says what ought to be. A fact can be tested. Good answers keep these apart, then use ethical points to strengthen evaluation.

Sustainability in practice

A sustainable policy asks three questions. Does it use resources faster than they renew? Does it leave future generations worse off? Who pays now? A government might spend on renewable energy: costs are paid by taxpayers today, benefits arrive later, and workers in fossil fuel industries may lose out. A strong answer names the winners and the losers, then weighs them.

Must-know distinctions

• Percentage change versus percentage-point change.
• Full employment versus zero unemployment.
• Progressive versus regressive taxes.
• Growth versus sustainable growth.
• Short-run versus long-run effects.

Quick self-test

1. Name the four principal economic objectives.
2. Define price stability.
3. Unemployed 0.96 million, labour force 12 million. Find the unemployment rate.
4. CPI rises from 150.0 to 154.5. Find the inflation rate.
5. Exports are 64 and imports are 71. State the balance and say what it is called.
6. Give a reason growth can worsen the balance of payments.
7. Name two objectives other than the four principal ones.
8. Define sustainability.
9. State the effect of a progressive income tax on inequality.
10. Name one group harmed by higher interest rates and say why.

Answers

1. Price stability, full employment, a balance of payments and economic growth.
2. Keeping inflation low and steady.
3. 0.96 / 12 × 100 = 8.0%.
4. (154.5 − 150.0) / 150.0 × 100 = 3.0%.
5. 64 − 71 = −7, a deficit.
6. Higher incomes lead to more spending on imports.
7. Reducing inequality and managing environmental change.
8. Supporting people today without leaving later generations with less to rely on.
9. It narrows the gap between incomes after tax, because richer households pay a higher share.
10. Borrowers, because repayments on loans rise.

Where marks are usually lost

• Describing a policy’s benefit and stopping, with no conflict.
• Naming a conflict with no chain of cause and effect.
• Treating “inequality” as the same as “poverty”. Inequality is the gap between households.
• Writing “the government should” with no reason linked to an objective.
• Saying the balance of payments is “how much the government owes”. It is about flows between the country and the rest of the world.
• Giving an ethical view as the whole answer, with no economic argument.
• Forgetting to give the unit or to say whether a result is a deficit or surplus.
• A conclusion that repeats the points with no judgement about which matters most in the context given.
• Applying one objective’s reasoning to another, such as using inflation language for unemployment.

Official syllabus

AQA GCSE Economics (8136) specification, for first teaching from September 2017, published by AQA: section 3.2.2.1 Economic objectives of the government.