Page 301 - Cambridge IGCSE Business Studies

24 Government economic

objectives and policies

Introduction
Objectives
All governments have economic objectives. They try to achieve their objectives by
In this chapter you will
introducing or changing policies. These policies affect government spending and

learn about:
interest rates, as well as taxation in the country, which in turn aff ect businesses.
■ the economic objectives of any
In this chapter you will look at how government control over the economy aff ects
government
business activities. Businesses are aff ected differently depending on the product or

■ the main stages of the business service they are selling, the industry they are in, and the size of the business. They
cycle are also affected by the economic environment of the country.

■ how changes in taxes,
government spending and
interest rates aff ect business How government control over the economy
affects business activity

activity
■ how businesses respond to
Government economic objectives
these changes.

Every government has economic objectives. There are four main ones:

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Economic objectives

Healthy balance
Low unemployment
of payments Low inflation Economic growth
Figure 24.1 Economic objectives of a government

KEY TERM A positive balance of payments
Th e balance of payments of a country is positive when the value of exports is
Balance of payments: the
greater than the value of imports – this is called a balance of payments surplus.

difference between the value of
The goods and services sold by one country to other countries in return for foreign

export and import of goods and

services of a country over a year. currency are exports. The goods and services bought by a country from other
countries are imports. Exports involve money coming into the country and imports
involve money flowing out of the country.

If there are more imports than exports, then there is more foreign currency

flowing out than coming into a country. This is known as a balance of payments

Exchange rates: see deficit, which can cause a shortage of foreign exchange. This means the government

Chapter 26, page 335.
of the country may have to borrow foreign currency from other countries at
expensive rates of interest, which could also affect the exchange rate of the country.

To avoid expensive borrowing costs and varying foreign exchange rates, it is better
for a country to have a positive balance of payments.