IGCSE Economics Paper-2: Specimen Questions with Answers 27 - 27 of 100

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In developing countries, inflation is not purely a monetary phenomenon. Factors typically related to fiscal imbalances, driving higher money growth and exchange rate depreciation, dominate the inflation process in developing countries.

Question 27 (1 of 5 Based on Passage)


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Why government should be concerned to keep the rate of employment low?


The Fundamental Macroeconomic Objective of the Government Is

  • Low inflation
  • Increasing the sustainable rate of economic growth
  • Full employment
  • Equilibrium in balance of payments.
Macro Economic Objectives
  • The basic objective is to have zero or very low unemployment. Whereas, in actual practice, there will always are some frictional unemployment. As people keep on looking for some new jobs.
  • According to the economists an unemployment rate of 3 % is considered as full employment. Full employment indicates the economy, is operating at its full capacity and there is no gap or deficiency in employment.

Reason for Targeting Full Employment Are

  • High unemployment involves various social and economic costs.
  • The unemployed will cause relative poverty in the economy.
  • The unemployment leads to de-motivated and unskilled employees. People experiencing long-term unemployment will find it difficult to search for employment again.
  • High unemployment increases government borrowing.
  • Unemployment also leads to social problems such as crime, vandalism, and social alienation, etc.

Therefore, there are several social benefits attached to full employment. Also, full employment has the side-effect of improving other objectives of the government. Lower unemployment will decrease the borrowing of the government and will boost economic growth.

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