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 and the macroeconomic aims

  Fiscal policy uses changes in taxes and government spending to influence the economy and meet the macro aims.

• 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.