The Five Macroeconomic Aims (CIE IGCSE Economics)

• Economic growth is a central macroeconomic aim of most governments
   
• Many developed nations have an annual target growth rate of 2-3%
  • This is considered to be sustainable growth
  • Growth at this rate is less likely to cause excessive demand pull inflation
     
• Politicians often use it as a metric of the effectiveness of their policies & leadership
   
• Economic growth has positive impacts on confidence, consumption, investment, employment, incomes, living standards & government budgets

A diagram showing the economic growth rate of the UK since 1998
Source: Macrotrends

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

• Someone is considered to be unemployed if they do not have a job & are actively seeking for one
   
• The target unemployment rate often depends on the size of the economy e.g. India finds a rate of 6.5% good whereas Singapore aims for it to be under 2%
  
  
• The closer an economy is to the full employment level of labour, the better (more efficiently) it is using its human resources
    
• Within the broader unemployment rate, there is an increased emphasis on the unemployment rate within different sections of the population
  • E.g. youth unemployment, ethnic/racial unemployment by group
    • In 2021, black unemployment in the USA was 8.7% & white unemployment was 4.7%

A diagram showing the unemployment rate in the UK from 1998 - 2020
Source: Macrotrends

• Unemployment tends to be inversely proportional to real GDP growth
  • When real GDP increases, unemployment falls
  • When real GDP decreases, unemployment rises
    
    
• Unemployment in the UK remained relatively high for the six years following the global financial crisis of 2007

• Most economies have a target inflation rate of 2% using the Consumer Price Index (CPI)
  
  
• A low rate of inflation is desirable as it is a symptom of economic growth
  
  
• The different causes of inflation (cost push or demand pull) require different policy responses from the Government
  • Demand-side policies ease demand pull inflation
  • Supply-side policies ease cost push inflation
    
    

A diagram illustrating the inflation rate in the UK from 2012 to 2021 using the CPI

• In the UK, a continual deviation from the target of 2% would not be considered as stable
  • An inflation rate in April 2022 of 4-5% was considered to be unstable, eroding household purchasing power
• A low & stable rate of inflation is important as it
  • Allows firms to confidently plan for future investment
  • Offers price stability to consumers

• The Balance of Payments (BoP) for a country is a record of all the financial transactions that occur between it and the rest of the world
  • The current account focuses mainly on the financial transactions related to exports and imports of goods/services
    
    
• Governments aim for Balance of Payments equilibrium on the Current Account
  • If exports > imports it will create a current account surplus
  • If imports > exports, it will create a current account deficit
    • Each one of these conditions has advantages/disadvantages associated with it
    • However, a current account deficit is more problematic in the long-run
      
      
• The UK has traditionally run a small deficit
  • As a % of GDP the UK current account deficit is insignificant so has not been problematic
    
    

A diagram showing the UK Trade Deficit from 1998 to 2020. The bottom graph illustrates the trade deficit as a % of GDP and the top one illustrates the absolute value expressed in US$
Source: Macrotrends

• In the diagram above the trade deficit has been falling steadily since 2016
  • During this time period the value of exports was increasing slightly faster than the value of imports
    

• The redistribution of income aims to reduce income inequality in an economy
  • High levels of income inequality create social unrest and can ultimately lead to revolutions
  • Perfect income equality is not desirable as it removes the incentive to work & study
     
• Governments aim to redistribute income by taxing the wealthy & providing welfare payments to the poor
   
• Unchecked capitalism has a natural outcome of high income inequality
  • The wealthy are able to keep buying factors of production
  • The concentration of ownership becomes more & more narrow with fewer individuals owning the bulk of the world's wealth
    
    
• There is a need for governments to intervene to maintain acceptable levels of income inequality
  
  
• Absolute poverty is usually worse in developing countries. However, in a developed economy such as Germany, a 1% increase in income inequality can push a lot more households into relative poverty