Macroeconomic aims and fiscal policy
G3 Economics - syllabus K343, 2027
What governments aim for, how aims conflict, the budget, taxation, and how fiscal policy works.
- The government's macroeconomic aims
Governments aim for growth, low unemployment, low inflation, a stable balance of payments, fairer income and sustainability.
- When macroeconomic aims conflict
Pursuing one aim can harm another, so governments must make trade-offs.
- The government budget
The budget sets out planned spending and revenue; spending above revenue is a deficit, below is a surplus.
- Why governments spend
Governments spend on health, education, defence, infrastructure and welfare to provide public and merit goods and support the economy.
- Taxation: reasons and types
Taxes raise revenue and change behaviour; they can be progressive, regressive or proportional, and direct or indirect.
- Fiscal policy: what it is and its measures
Fiscal policy is the use of changes in taxes and government spending to influence the economy and meet the macroeconomic aims.
- How fiscal policy helps each macroeconomic aim
Expansionary fiscal policy supports growth and jobs, contractionary policy fights inflation, and taxes and transfers also change the current account and income distribution.
- Put it together: Respond to a recession
Spending has fallen and unemployment is rising. The government has room for one main budget measure this year. Compare the options.
What you will be able to do
I can state the government's macroeconomic aims, explain why they are chosen, and show where they conflict.
Syllabus K343, 4.1.1. Macroeconomic aims: the macroeconomic aims of government: economic growth, full employment/low unemployment, stable prices/low inflation, balance of payments stability, redistribution of income, environmental sustainability; reasons behind the choice of aims and the criteria that governments may set for meeting each aim; possible conflicts between macroeconomic aims: full employment and stable prices, economic growth and environmental sustainability, full employment and balance of payments stability
Taught in The government's macroeconomic aims, When macroeconomic aims conflict
I can define a government budget, deficit and surplus, and calculate their size.
Syllabus K343, 4.2.1. Government budget: definitions of: government budget, government budget deficit, government budget surplus; calculations of the size of a government budget deficit/surplus
Taught in The government budget
I can explain the main areas of government spending and the reasons and effects of each.
Syllabus K343, 4.2.2. Reasons for government spending: main areas of government spending and the reasons for and effects of spending in these areas
Taught in Why governments spend
I can explain why governments tax, classify taxes, and explain who a tax affects.
Syllabus K343, 4.2.3. Taxation: reasons for taxation: raising revenue, discouraging consumption of demerit goods, reducing imports, redistributing income, influencing total demand, encouraging environmental sustainability; examples of the different classifications of tax: progressive, regressive, proportional; direct, indirect; impact of taxation on consumers, workers, producers/firms, the government and the economy
Taught in Taxation: reasons and types
I can define fiscal policy.
Syllabus K343, 4.2.4. Definition of fiscal policy
I can describe fiscal policy measures: changes in taxes and government spending.
Syllabus K343, 4.2.5. Fiscal policy measures: changes in: taxes, government spending
I can explain how fiscal policy can help a government meet its macroeconomic aims.
Syllabus K343, 4.2.6. Effects of fiscal policy on government macroeconomic aims: how fiscal policy measures may enable a government to achieve its macroeconomic aims