2.6.1 Possible economic objectives

• Define economic growth

  It refers to an increase in the production of goods and services in an economy over a period of time, typically measured as the percentage increase in real GDP
• Benefits of economic growth

  -Higher Living Standards: Increased income and improved quality of life

  
  

  -Employment: More job opportunities as firms expand
• Costs of economic growth

  -Inflation: Rapid growth can lead to rising prices

  
  

  -Environmental Impact: Increased production can harm the environment
• Define low unemployment

  It means that a large proportion of the labor force is employed, leading to higher income and production levels in the economy
• Benefits of low unemployment

  -Higher Income: More people earning wages

  
  

  -Social Stability: Reduced poverty and social unrest
• Costs of low unemployment

  -Inflation: Low unemployment can drive wages up, leading to inflation

  
  

  -Skill Mismatches: Over time, job types change, and not all workers may have the skills needed
• Define low and stable rate of inflation

  It means that prices of goods and services rise slowly and predictably over time
• Benefits of low and stable rate of inflation

  -Predictability: Helps businesses plan for the future

  
  

  -Maintained Purchasing Power: Protects consumer savings
• Costs of low and stable rate of inflation

  -Interest Rates: Low inflation can lead to low-interest rates, which may not always stimulate investment

  
  

  -Deflation Risk: If inflation is too low, the economy may slip into deflation, which can be harmful
• Balance of Payments Equilibrium on Current Account

  It refers to a situation where the value of exports of goods and services is roughly equal to the value of imports, avoiding large deficits or surpluses
• Benefits of Balance of Payments Equilibrium on Current Account

  -Economic Stability: Reduces reliance on foreign debt

  
  

  -Exchange Rate Stability: Avoids large fluctuations in currency value
• Costs of Balance of Payments Equilibrium on Current Account

  -Export Dependency: Too much focus on exports can make the economy vulnerable to global downturns

  
  

  -Consumption Sacrifice: May require reduced domestic consumption to balance trade
• Balanced Government Budget

  It occurs when government revenues = government expenditures over a fiscal period
• Benefits of Balanced Government Budget

  -Debt Control: Prevents the accumulation of national debt

  
  

  -Investor Confidence: Attracts foreign investment by showing fiscal responsibility
• Costs of Balanced Government Budget

  -Public Services: May require cuts in public services or higher taxes

  
  

  -Flexibility: Reduces government's ability to respond to economic crises
• Protection of the environment

  It involves policies aimed at reducing pollution, conserving natural resources, and promoting sustainable practices
• Benefits of Protection of the environment

  -Sustainable Development: Ensures resources are available for future generations

  
  

  -Health Benefits: Reduces pollution-related health issues
• Costs of Protection of the environment

  -Economic Trade-Offs: Environmental regulations can increase production costs

  
  

  -Competitive Disadvantage: Stricter regulations can make domestic firms less competitive internationally
• Greater Income Equality

  It means a more equitable distribution of income across society, reducing the gap between the rich and the poor.
• Benefits of Greater Income Equality

  -Social Cohesion: Reduces social tensions and promotes fairness

  
  

  -Economic Stability: More equal societies tend to have more stable economies
• Costs of Greater Income Equality

  -Incentives: High redistribution may reduce incentives to work and invest

  
  

  -Government Spending: Requires significant government intervention and spending