Cambridge IGCSE Economics 0455
Syllabus points
- Describe the government's macroeconomic aims.
- Explain that aims can conflict with one another.
The main macroeconomic aims
Governments pursue four main aims for the whole economy:
- Economic growth — a rising output of goods and services (higher GDP).
- Low unemployment — most people who want to work can find jobs.
- Price stability — low and steady inflation.
- Balance of payments stability — avoiding large, persistent trade deficits.
Some syllabuses add redistribution of income (reducing inequality) and environmental protection as further aims.
Key definitions
| Term | Definition |
|---|---|
| Economic growth | An increase in a country's output (GDP) over time. |
| Price stability | Keeping inflation low and steady. |
| Balance of payments | A record of a country's trade and financial flows with the rest of the world. |
Conflicts between aims
Aims often conflict, so governments must make trade-offs:
- Growth vs price stability — fast growth can push up inflation.
- Growth vs the environment — more production can cause more pollution.
- Low unemployment vs low inflation — cutting unemployment can raise inflation.
- Growth vs the balance of payments — rising incomes can suck in more imports.
Chasing one aim (e.g. faster growth) can worsen another (e.g. inflation or the environment).
Worked example
A government boosts spending to cut unemployment. More people have jobs and incomes, which is good — but the extra demand may push up prices (inflation) and increase spending on imports (worsening the balance of payments). Achieving one aim has created tension with two others, forcing the government to balance its goals.
Common exam mistakes
- Listing aims without explaining that they can conflict.
- Confusing the aims (goals) with the policies used to reach them (topics 4.3–4.5).
Exam technique
Learn the four main aims, then be ready to explain a specific conflict and how a government prioritises. Use this to add evaluation to policy questions.
Quick revision
- Aims: growth, low unemployment, price stability, balance of payments.
- Aims conflict — e.g. growth vs inflation, unemployment vs inflation.