Government Objectives & Policies

• Governments chase four main economic objectives: economic growth, low inflation, low unemployment, and a healthy balance of payments.
• They pay for public services using tax revenue — from company profits, income, sales, imports, and excise duties.
• Government spending on infrastructure, health, and education directly benefits businesses through contracts, productive workers, and higher consumer spending.
• Legislation (consumer protection, equal opportunities, health & safety, competition, environment) sets the rules businesses must operate within.
• Trade policy — tariffs, trade blocs, free trade agreements — controls how easily businesses import and export.
• Interest rates (set via the Central Bank) affect borrowing costs, exports, credit sales, and whether people save or spend.

Think of a government running a country a bit like a person running a household budget crossed with a sports team manager — they've got a handful of key targets they're always trying to hit at the same time, and pulling one lever to help one target often knocks another one off balance. Every government (UK, US, wherever) tends to chase the same four objectives:

📈Positive Economic Growth

This means the amount of goods and services a country produces per head of population is going up over time. It's not just "the economy makes more stuff" — it's "the economy makes more stuff per person," which is what actually raises living standards.

Here's the chain reaction, and it's worth learning this exact sequence because exam questions often want you to trace it:

💷Low Levels of Inflation

Inflation is a general increase in prices and a fall in the purchasing value of money over time — meaning the same £10 note buys you less stuff next year than it does today. Both the UK and US governments set their Central Bank an inflation target of 2%. Central Banks use tools like the base rate (interest rates) and quantitative easing to try and hit that target.

👷Low Levels of Unemployment

people without a job who are actively seeking and available for work increases national output improves workers' living standards

🌍A Healthy Balance of Payments