OxfordAQA IGCSE Economics: Government Objectives — Practice Questions (9214)

These are original questions written for Marlbridge, in the style and at the standard of the examination. They are not reproduced past-paper questions — examination boards hold copyright in their own papers. Use these alongside the official past papers available free from your board.

Related: Government objectives study guide

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Section A

1. State the four principal economic objectives of a government. [4]

2. Distinguish economic growth from economic development. [2]

Section B

3. Explain how a government policy aimed at reducing unemployment could conflict with the objective of price stability. [6]

4. Identify the type of unemployment described in each scenario and give a reason: (a) a worker between jobs for three weeks (b) a ski-resort worker unemployed outside winter (c) a coal miner unemployed after the local mine permanently closes. [6]

5. Distinguish cost-push inflation from demand-pull inflation, giving one example cause of each. [4]

6. Explain one way a government could reduce income inequality through taxation, and one possible drawback of this approach. [4]

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Answers

1. Full employment, price stability, economic growth, balance of payments (equilibrium) [1] [1] [1] [1].

2. Economic growth is a rise in a country’s output, measured by GDP, real GDP or GDP per capita [1]. Economic development is a broader improvement in living standards (health, education, infrastructure) that does not always follow automatically from growth [1].

3. A government could cut interest rates or increase spending to encourage borrowing, spending and hiring, reducing unemployment [1] [1]. However, this also increases demand for goods and services economy-wide [1]; if supply cannot keep pace with this rising demand, demand-pull inflation results [1] [1], meaning the objective of full employment is pursued at the cost of the objective of price stability [1].

4. (a) Frictional unemployment — short-term time between jobs [1] [1]. (b) Seasonal unemployment — follows a predictable yearly pattern linked to the season [1] [1]. (c) Structural unemployment — comes from a long-term decline in an industry [1] [1].

5. Cost-push inflation starts with rising production costs (e.g. imported raw materials becoming more expensive) being passed on to consumers as higher prices [1] [1]. Demand-pull inflation starts with demand in the economy outstripping what producers can supply, pulling prices up (e.g. a sudden rise in consumer confidence and spending) [1] [1].

6. A government could use progressive taxation, taxing higher incomes at a higher rate and redistributing the revenue through spending on public services or benefits for lower-income households [1] [1]. Possible drawback: higher taxation on income can reduce the incentive to work harder or invest, potentially slowing economic growth [1] [1].

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Exam technique for this topic

Every question type on this topic ultimately tests the ability to identify and explain a conflict between government objectives, so when a question asks you to “explain” an effect of a policy, always follow the causal chain through to a second objective it affects, as modelled in the Q3 answer above (policy → intended effect on one objective → side effect on a second objective), rather than stopping at the first, intended effect alone. For the four types of unemployment (Q4), always name the type first and then give the specific reasoning that identifies it — a scenario mentioning “between jobs” signals frictional, while a scenario mentioning “permanently closes” or “long-term decline” signals structural, and confusing these two is one of the most common errors on this topic. When distinguishing cost-push from demand-pull inflation, identify which side of the market (supply costs or demand) is described as changing first in the scenario, since that determines which mechanism applies.

Worked example: evaluating a policy against multiple objectives

A longer exam question might ask you to evaluate whether a government should raise interest rates to control inflation. A strong answer does not simply describe the policy — it traces the effect through several objectives in turn, weighing them against each other:

Raising interest rates makes borrowing more expensive and saving more attractive, which reduces consumer spending and business investment [1]. Lower spending eases demand-pull inflationary pressure, helping the price stability objective [1]. However, the same fall in spending also reduces the demand facing businesses, which may respond by cutting production and jobs, working against the full employment objective [1]. A stronger currency, attracted by higher interest rates, could also make exports less competitive abroad, working against the balance of payments objective [1]. A balanced conclusion weighs which objective matters most in the given context — for example, if inflation is severely eroding household purchasing power, controlling it may be judged the more urgent priority even at some cost to employment [1].

This structure — policy, immediate mechanism, effect on the targeted objective, then knock-on effect on at least one other objective, followed by a judgement — is the shape examiners are looking for whenever a question uses the command word “evaluate” or “discuss” rather than simply “explain”, and it earns marks in the higher band that a one-sided description cannot reach.

Where marks are usually lost

• Listing the four objectives without naming or explaining a genuine conflict between them.
• Using “growth” and “development” interchangeably, when the specification tests the distinction directly.
• Misidentifying a type of unemployment, particularly confusing structural (long-term industry decline) with cyclical (linked to the wider economic cycle).
• Confusing the balance of trade (goods and services only) with the wider balance of payments (which also includes investment and financial flows).