LS1 - Macroeconomic Objectives Flashcards
What are the typical macroeconomic objectives governments have?
Economic growth, unemployment, inflation and the current account on the balance of payments. (Other objectives like government budgets, the environment and income inequality exist too!)
What is the governments objectives for economic growth?
Higher income countries see a 2.5% economic growth percentage as challenging due to being so technologically advanced and having ageing populations. However in middle and lower income countries more than 2.5% economic growth percentage is attainable due to technological advances and general advances to work outputs.
What is the governments objectives for unemployment and employment?
Government would like to see unemployment as low as possible but it is impossible to have zero unemployment due to frictional and seasonal unemployment. A five percent unemployment rate is seen as a considerable achievement. Higher employment would increase tax revenues as less people would receive benefits.
What is government objectives for inflation and deflation?
Central banks and governments in the industrialised world have set inflation targets at two percent. Deflation is seen to produce negative economic growth.
What is the government objective on the balance of payments on current account?
To be balanced over time. Large surplus’s in current accounts are seen to be common in stronger economies and deficits are common in weaker economies.
What is the government objective on the environment ?
In order to grow economically the government damages the environment to do so however there are pro growth economists who argue that increases in output and improvements in technology will allow economies to clean up their environments and reduce pollution.
What is the government objective on income distribution?
Governments would need to intervene to reduce inequality and they can do this by intervening with markets and making caps on prices to allow people to save money and not pay extortionate prices. This will allow to reduce inequality as people can retain more of their income.
