Government & the Economy is a core part of GCSE Economics. Revise the key concepts and common mistakes below, then lock them in with the free games.
Key concepts
Macroeconomic objectivesUK government targets: low and stable inflation, full employment, economic growth, balance of payments equilibrium.
Fiscal policyUse of government spending and taxation to influence aggregate demand; Treasury's Budget tool.
Monetary policyBank of England Monetary Policy Committee changes interest rates and uses quantitative easing to control inflation.
Public sectorGovernment-owned activities like NHS, state schools and roads; funded by taxation and borrowing.
PrivatisationTransferring state-owned enterprises to private ownership; major UK programme in 1980s under Thatcher.
RegulationRules set by government or regulators (Ofgem, Ofcom) to correct market failure and protect consumers.
GDPGross Domestic Product — total UK output in a year.
Real GDPGDP adjusted for inflation.
Nominal GDPGDP at current prices, not inflation-adjusted.
GDP per capitaGDP ÷ population — average output per person.
Economic growth% increase in real GDP over time.
Business cycleBoom, recession, slump, recovery.
Growth rate(New GDP − Old GDP) ÷ Old GDP × 100.
Trend growthLong-run average growth rate of an economy.
Common mistakes to avoid
Questions where students often pick the tempting wrong answer — make sure you know the right one:
What does economic scarcity mean?✗ Simply that something is rare. ✓ Unlimited wants exceed limited resources, forcing choices.
What is opportunity cost?✗ Only the money price of an item. ✓ The next best alternative given up when you make a choice.
How is economic growth shown on a Production Possibility Curve?✗ Growth is shown by moving from inside the curve to a point on the curve. ✓ By an outward shift of the entire curve — reflecting an increase in productive capacity through more or better resources, technology, or skills.
What is the difference between fixed and variable costs?✗ Fixed costs never change at all, ever. ✓ Fixed costs don't change with output (e.g. rent, salaries); variable costs change directly with output (e.g. raw materials, hourly wages).
Which is the standard definition of a RECESSION?✗ GDP fell for one month ✓ Two consecutive quarters of falling real GDP
Practise Government & the Economy — free games
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