3.2.2.1 The main economic objectives of the government
The four principal objectives
Full employment: everyone who is able and willing to work can find a job. In practice, a low rate of unemployment.
Price stability: low and steady inflation. The government’s target is 2% CPI inflation, which the Bank of England aims to meet.
Economic growth: a steady rise in real GDP, the output of the economy adjusted for inflation.
A balance of payments: a current account (exports and imports) that can be sustained, without a large deficit for many years.
Objective
UK figure
Date of figure
Full employment
Unemployment 4.7%
June to August 2026
Price stability
CPI inflation 3.5% (target 2%)
12 months to September 2026
Economic growth
Real GDP +0.5% on the previous quarter
April to June 2026
Balance of payments
Current account deficit of 2.5% of GDP
April to June 2026
The government’s economic objectives
Last checked: November 2026These figures come from the ONS and change every month or quarter. Learn how to judge them (is unemployment low? is inflation near 2%?), not the numbers themselves.
Exam tipDon’t mix up the government’s objectives with a business’s objectives. Profit and market share are business objectives and score nothing here.
Full employment
When all those who are able and willing to work have a job.
Price stability
Low and steady inflation; in the UK, a target of 2% CPI inflation.
Economic growth
An increase in real GDP over time.
3.2.2.1 Other government objectives
Other objectives
Reducing inequality: narrowing the gap between the incomes and wealth of rich and poor.
Managing environmental change: cutting pollution and emissions and protecting natural resources, so growth is sustainable.
Balancing the budget: keeping government spending close to tax revenue, so borrowing doesn’t pile up.
Governments choose which objectives come first, and different parties and voters disagree. There is no single right order.
Exam tipAQA has asked students to identify “managing environmental change” as a government objective. Learn all three “other” objectives by name.
Sustainable economic growth
Growth that meets today’s needs without harming the ability of future generations to grow and meet theirs.
3.2.2.1 Conflicts arising from the pursuit of objectives
Conflicts between objectives
A policy that helps one objective can harm another. These are conflicts or trade-offs.
Growth v price stability: if spending rises faster than the economy can produce, prices are pulled up (demand-pull inflation).
Growth v balance of payments: as incomes rise, people buy more imports, so the current account deficit can widen.
Growth v the environment: more output usually means more energy use, emissions and waste.
Price stability v full employment: higher interest rates to cut inflation make borrowing dearer, so spending falls and firms may cut jobs.
Some objectives fit together: faster growth usually creates jobs and raises tax revenue, which helps balance the budget.
If growth falls sharply…
Likely effect
Unemployment
Rises: firms need fewer workers
Inflation
Falls: less spending pressure on prices
Trade or current account deficit
Narrows: people buy fewer imports
Budget deficit
Widens: less tax revenue, more spent on benefits
Where faster growth can clash with other objectives
Exam tipIn one exam about 70% of students got a question like the table above wrong. A big fall in growth makes the trade deficit smaller, because people buy fewer imports. Work through each effect step by step.
Conflict between objectives
When a policy that helps achieve one objective makes another harder to achieve.
3.2.2.1 Effects on groups; moral, ethical and sustainability considerations
Who loses? Effects on groups, ethics and sustainability
Pursuing one objective can harm particular groups, even if the economy as a whole gains.
Higher interest rates to fight inflation: households with mortgages and firms with loans pay more.
Growth from new roads, airports or housing: people living nearby face noise, pollution and lost green space.
Green taxes on fuel or energy: drivers in rural areas and energy-hungry industries pay more, and they take a bigger share of low incomes.
Moral and ethical questions: how much should today’s growth cost future generations? Is it fair if the gains go mostly to high earners?
Exam tipWhen a question names a group (workers, savers, borrowers, firms, the government), keep every point about that group. Examiners report students drifting into general answers.
3.2.2.2 The significance of economic growth; GDP and real GDP
Economic growth, GDP and real GDP
GDP (gross domestic product): the value of all goods and services produced in an economy in a year.
Real GDP: GDP adjusted for inflation. It shows whether the amount produced has grown, not just prices.
Economic growth: an increase in real GDP. The growth rate is the percentage change in real GDP.
Growth rate = (real GDP this year − real GDP last year) ÷ real GDP last year × 100.
If GDP rises only because prices rose, nothing more has been produced. Roughly, real growth ≈ the rise in GDP − the rate of inflation.
Recession (an extra term): real GDP falls, usually for two quarters in a row.
Worked exampleReal GDP rises from £480 billion to £492 billion (invented). Calculate the growth rate.
Change = £492 bn − £480 bn = £12 bn
Growth rate = 12 ÷ 480 × 100
2.5%
Worked exampleAn economy’s GDP measured in current prices rises by 6% in a year, while prices rise by 4% (invented). Roughly how much has real GDP grown?
Part of the rise is just higher prices
Real growth ≈ 6% − 4%
About 2%
Exam tipDivide by the original (earlier) year. Using the later year as the denominator is a common slip in the growth calculation.
GDP
The value of all goods and services produced in an economy in one year.
Real GDP
GDP adjusted for inflation.
Recession
A period when real GDP falls, usually two quarters in a row (an extra term).
3.2.2.2 GDP per capita
GDP per capita and living standards
GDP per capita = GDP ÷ population. It is the average output per person.
It is a better guide to living standards than total GDP: if the population grows faster than GDP, the average person is worse off.
Real GDP per capita is the best simple guide, because it also removes inflation.
Limits: it is an average, so it hides inequality; it leaves out unpaid work, leisure time, health and the environment.
In 2025, UK real GDP per head was £42,313 (in 2024 prices, ONS, published September 2026).
Worked exampleA country has GDP of £600 billion and a population of 15 million (invented). Calculate GDP per capita.
GDP per capita = GDP ÷ population
= £600,000,000,000 ÷ 15,000,000
£40,000
Worked exampleGDP is £250 billion this year and grows by 3%. The population is 5.0 million and grows by 1% (invented). Calculate GDP per capita next year to the nearest £.
GDP next year = £250 bn × 1.03 = £257.5 bn
Population next year = 5.0 million × 1.01 = 5.05 million
GDP per capita = £257,500,000,000 ÷ 5,050,000 = £50,990.10
£50,990
Exam tipWatch the units. Billions ÷ millions gives thousands of pounds: £600 bn ÷ 15 m = £40,000, not £40. Writing the numbers out in full avoids the factor-of-1,000 slip examiners report.
GDP per capita
GDP divided by the population: the average output per person.
Living standards
How well off people are: their income, goods and services, and quality of life.
3.2.2.2 Causes of economic growth
Causes of economic growth
More factors of production: more workers (e.g. through migration or more people joining the labour force), more land or resources.
Better factors of production: education and training make workers more skilled; new technology makes machines more productive.
Investment: firms buy capital such as machinery, software and buildings; the government builds roads, rail and broadband.
Higher productivity: more output per worker per hour.
More spending: rising consumer spending, government spending or exports encourage firms to produce more.
Enterprise: new businesses and new ideas.
Exam tipExplain the link to output, not just the cause. “More investment in machinery” is 1 mark; “…so each worker can produce more, raising real GDP” earns the second.
Investment
Spending on capital goods, such as machinery and buildings, used to produce more in future.
Productivity
Output per worker (or per hour worked).
3.2.2.2 Costs and benefits of economic growth
Benefits and costs of growth
Whether growth is worth it depends on how it happens: growth from cleaner technology costs the environment less than growth from burning more fossil fuels.
Inequality: gains may go mostly to some groups or regions
Firms earn more profit to invest
More imports, so a bigger current account deficit
Exam tipFor “assess” questions on growth, weigh benefits against costs and say who gains and who loses. A conclusion like “growth is good if it is sustainable and shared” needs reasons from the Figure.
3.2.2.2 Government policies to achieve economic growth
Policies to achieve growth (overview)
Each policy has its own topic. Here is the outline.
Fiscal and monetary policies boost spending in the short run. Supply-side policies raise the economy’s ability to produce over the long run.
Each can conflict with another objective, such as inflation or the budget.
Type of policy
Examples
How it can raise growth
Fiscal policy (see Taxation, Government Spending and Fiscal Policy)
Lower taxes; more government spending
More spending in the economy, so firms produce more
Monetary policy (see Interest Rates and Monetary Policy)
Lower Bank Rate, set by the Bank of England
Cheaper borrowing, so more spending and investment
Supply-side policies (see Supply-side Policies)
Education and training; lower business taxes; deregulation
More, and more productive, factors of production
Exam tipInterest rates are set by the Bank of England’s Monetary Policy Committee, not by the government. Write “monetary policy, carried out by the Bank of England”.
3.2.2.2 Growth in the UK; interpreting data
UK growth: the figures and reading a growth chart
UK figures (ONS): real GDP grew 1.2% in 2025. In April to June 2026 it grew 0.5% on the previous quarter, and was 1.4% higher than a year earlier. GDP in 2025 was about £3.04 trillion at current prices.
Forecast: at Budget 2026 (28 October 2026) the Office for Budget Responsibility forecast growth of about 1¼% in 2026 and 1% in 2027.
Reading a growth chart: each point is a rate of change. A falling line that stays above zero means the economy is still growing, just more slowly. Only values below zero mean real GDP has fallen.
Last checked: November 2026. The third-quarter figure for 2026 was due on 12 November 2026.
A growth chart for an invented economy: slowing growth, then a recession, then recovery
Exam tip“Growth fell from 2.4% to 1.6%” does not mean the economy shrank. Output still rose, just by less. Say “the rate of growth slowed”.
Genious