MACRO - LS11 - Macroeconomic Objectives

Question 1

4 macroeconomic objectives

Answer 1

• economic growth
• unemployment
• inflation
• current account on balance of payments

Question 2

Economic growth

Answer 2

• all other things being equal, governments want to maximise growth rate
• easier to achieve higher rates in lower income counties as more productive potential, can have rates of 10%, move workers from low-productivity to high productivity areas, use modern tech
• high income countries already industrialised, reached productive potential, effective, forefront of tech development, have aging population - want around 2.5% growth

Question 3

Unemployment & Employment

Answer 3

• want to see it as low as possible without it being an inflationary pressure in economy
• impossible for it to be 0 as always frictional and seasonal unemployment
• gov has no official target
• gov want high employment as more tax revenue and less welfare benefits

Question 4

Inflation

Answer 4

• target set at around 2% - low but positive inflation
• if too high, fear it will increase further
• don’t want deflation as seen as linked to recession or negative economic growth

Question 5

Balance of payments on current account

Answer 5

• aim to be broadly in balance over time
• when persistently in surplus are seen as ‘strong’ economies - but can be strong with low growth rates
• persistent deficits are seen as ‘weak’ economies - but can grow fast without significant problems
• very large deficits can be dangerous - if they can’t repay loans there will be crisis with sudden fall in GDP

Question 6

Government budgets

Answer 6

• if country grows at 2.5% a year, 2% inflation and low interest rates then fiscal deficit of around 3% will be seen as stable level of debt as % of GDP
• High levels unsustainable in long term as they borrow more then they expect to pay with interest in future
• in short term large deficit can be sustainable as long as it’s reduced to manageable levels over time

Question 7

Environment

Answer 7

• no measure but wide range of objectives
• environmentalists tend to be anti-growth - argue damages environment
• some say growth causes new tech that improves environment

Question 8

Income distribution

Answer 8

• right wing argue inequality is positive as increases incentive to work & take economic risks, increases growth rates, raising income for all in society
• so against policies which reduce inequalities, particularly increase in taxes for high income earners
• left wing argue everyone should have access to certain living standard & free markets lead to inequality so gov need to intervene to reduce inequality e.g max/min prices
• make healthcare/education free and fund through raising taxes, especially on high income earners
• can transfer income through taxes & benefits
• argue high levels of inequality are not correlated with economic growth
• will work & take risks even if marginal rates of tax are high