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

This guide covers section 3.2.2.1, Economic objectives of the government, in the AQA GCSE Economics (8136) specification for first teaching from September 2017. It sits in 3.2 How the economy works, which the specification assigns to Paper 2. The specification has no tiers. Everything named below, from the countries to the numbers, is fictional and chosen only to illustrate the ideas.

The existing government objectives guide outlines the four main objectives. This guide adds the other objectives (inequality and the environment), who gains and loses, and the moral, ethical and sustainability points. Pair it with the revision notes and the practice set. Other links: the AQA GCSE Economics hub, the checklist and the free diagnostics.

Skills this section tests

Specification point	What it means for you
Principal objectives	Define full employment, price stability, economic growth and a balance of payments, and say how each is measured
Conflicts	Show how a policy aimed at one objective can damage another
Other objectives	Explain reducing inequality and managing environmental change
Groups of people	Say who loses when an objective is pursued, and how that conflicts with other objectives
Moral, ethical and sustainability	Bring fairness, responsibility and the needs of future generations into your judgements

1. The four principal objectives

Objective	Aim	Usual measure
Full employment	Almost everyone who wants a job can find one	Unemployment rate
Price stability	Low, steady inflation	Inflation rate from the Consumer Price Index (CPI)
Economic growth	Output of goods and services rising over time	Percentage change in real GDP
Balance of payments	Money flowing in and out of the country roughly in balance	Current account balance

“Full employment” does not mean zero unemployment: some people are always between jobs.

Worked example: measuring Country A (illustrative)

• Unemployment: 1.6 million unemployed in a labour force of 32 million. Rate = 1.6 / 32 × 100 = 5.0%.
• Inflation: the CPI rises from 112.0 to 115.4. Rate = (115.4 − 112.0) / 112.0 × 100 = 3.04, so 3.0% (1 d.p.).
• Growth: real GDP rises from 800 to 824 (billion units). Growth = (824 − 800) / 800 × 100 = 3.0%.
• Current account: exports of goods and services 210, imports 236. Balance = 210 − 236 = −26, a deficit of 26.

A deficit means more money leaves the country for imports than enters for exports. It is a problem if it persists, because it has to be financed somehow.

2. Conflicts between objectives

Policies are tools, and each has side effects. Build any conflict as a chain: policy, first effect, knock-on effect, objective harmed.

Chain 1: lower interest rates to cut unemployment

1. The central bank lowers interest rates. Loans become cheaper, and savers earn less.
2. Households and firms spend and invest more, so total demand rises.
3. Firms produce more and hire, so growth rises and unemployment falls.
4. If firms cannot raise output quickly enough, they raise prices, so inflation rises. Part of the extra demand is also spent on imports, so the current account moves towards deficit.

Worked example: Country B before and after cutting rates (illustrative)

Indicator	Year 1	Year 2	Change
Real GDP growth (%)	0.8	3.1	+2.3 percentage points
Unemployment rate (%)	8.0	6.2	−1.8 percentage points
Inflation rate (%)	1.1	4.2	+3.1 percentage points
Current account (% of GDP)	−1.5	−3.0	−1.5 percentage points

Growth and employment improved. Price stability and the balance of payments worsened. A good answer says both things and then judges which matters more. Starting from 1.1% inflation and 8.0% unemployment, accepting some inflation is easier to defend than it would be if inflation had started at 6%.

Chain 2: higher interest rates to cut inflation

Higher rates make borrowing dearer, so spending and investment fall and demand growth slows. Price rises ease, but growth slows and firms cut jobs, so unemployment may rise. The same policy can help the balance of payments, because weaker demand means fewer imports.

Other common conflicts

• Growth and the balance of payments: richer households buy more imports.
• Growth and price stability: growth that outruns the economy’s capacity pulls prices up.
• Full employment and price stability: very low unemployment can push wages and prices up.

Time matters too. Some effects arrive quickly and others take months, and a government may accept a short-term cost for a long-term gain.

3. Reducing inequality

Governments may want a fairer distribution of income because very large gaps can leave poorer households unable to afford basics. The main tools are taxation and government spending (benefits and public services).

Worked example: a progressive tax in Country C (illustrative)

Income up to 9,000 is untaxed. The slice from 9,000 to 36,000 is taxed at 15%, and anything above 36,000 at 35%.

Household	Income	Tax	Income after tax
P	9,000	0	9,000
Q	27,000	15% × 18,000 = 2,700	24,300
R	84,000	15% × 27,000 + 35% × 48,000 = 4,050 + 16,800 = 20,850	63,150

• Total income before tax is 120,000. R receives 84,000 / 120,000 = 70.0% of it.
• Total after tax is 96,450. R keeps 63,150 / 96,450 = 65.5% of it, and P’s share rises from 7.5% to 9.3%.
• R’s income is 9.3 times P’s before tax and 7.0 times after tax.
• Average tax rates are 0%, 10.0% and 24.8%. The tax is progressive because the rate rises with income.

Conflict: high marginal rates may reduce the reward for extra work or enterprise, and very high earners may work less or move abroad. That could slow growth and reduce the revenue collected. Evidence on how large this effect is varies, so say “may”. The benefit side matters too: spending on education and health can raise future skills and output.

4. Managing environmental change

Economic activity causes pollution and uses up resources, which are negative externalities when the costs fall on third parties. Governments may use taxes on pollution, regulation, subsidies for cleaner technology, or spending on public transport.

Worked example: a pollution tax on a firm (illustrative)

A mill emits 50,000 tonnes a year. A tax of £8 per tonne costs it 50,000 × 8 = £400,000. Cutting emissions by 10,000 tonnes costs it £60,000 in new equipment. After cutting, the tax bill is 40,000 × 8 = £320,000. The tax saved is £80,000, which is more than £60,000, so the firm gains £20,000 by cutting. The tax has changed behaviour.

Who might lose, and which objectives may suffer

• Low-income households: a fuel tax is a larger share of a small income. Suppose a 25% rise in fuel prices adds £300 to Household V’s bill (income £18,000) and £600 to Household W’s (income £72,000), with buying unchanged. V pays 300 / 18,000 = 1.7% of income, W pays 600 / 72,000 = 0.8%. Such a tax is regressive in effect, so an environmental policy can conflict with reducing inequality.
• Workers in polluting industries: closures hit employment, especially in regions that depend on one industry.
• Exporters: higher costs can make a country’s goods less competitive, affecting the balance of payments.
• Growth: stricter limits on output may slow growth now. Cleaner production may protect growth in the long run.

5. Groups affected by the pursuit of an objective

Name the group, say how they lose and link it to an objective.

• Borrowers: if rates rise by 2 percentage points on a £150,000 mortgage, annual interest rises by 150,000 × 0.02 = £3,000, or £250 a month (ignoring capital repayments).
• Savers: £1,000 saved at 1% grows to £1,010. If prices rise 4%, what cost £1,000 now costs £1,040. The saving buys 1,010 / 1,040 = 97.1% of what it did, a 2.9% fall in buying power. Rising prices hurt savers whose interest is low, and people on fixed incomes.
• Unemployed workers: lose income and may lose skills.
• Exporters: harmed if policy raises the value of the currency, making exports dearer abroad.

6. Moral, ethical and sustainability considerations

Economics deals with facts (positive statements) and with value judgements, which are about what ought to happen. Moral and ethical considerations concern fairness and responsibility. Sustainability means using resources so that people today are supported without leaving later generations with less to rely on.

• Fairness: is it right that the poor bear more of the cost of a policy?
• Responsibility: should those who cause pollution pay for it?
• Future generations: growth that uses up resources or damages the climate takes from people who have no vote today.
• Workers: is cheaper output acceptable if conditions are unsafe?

These are different from economic arguments, because people can agree on the facts and still disagree on what is right. Use them to deepen evaluation. Do not replace the economics with opinion.

Building an evaluation

1. State the objective and the policy.
2. Explain the intended effect.
3. Give a conflict with another objective or a group harmed.
4. Judge: which matters more here, and why? Consider the starting position, the time scale and fairness.

Common errors

• Describing only the intended effect and ignoring the conflict.
• Treating growth as always good.
• Saying “full employment” means zero unemployment.
• Mixing up a percentage change with a percentage-point change.
• Giving an ethical opinion with no economic reason.
• Writing “the poor” without saying how they lose.

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.