Macro - Possible Macroeconomic Objectives

Question 1

Economic growth government objective

Answer 1

The government aims to achieve strong, sustained and stable levels of economic growth. A sustainable long term economic growth rate is around 3 or 4 %

Question 2

Low unemployment government objective

Answer 2

The government aims to have an unemployment rate if around 5%. This allows for some frictional unemployment within the economy

Question 3

Low and stable rate of inflation government objective

Answer 3

The government aims to have a rate of inflation between 2 and 3% as it encourages consumers to spend their money sooner and offers price stability to consumers, firms and foreign investors.

Question 4

BOP equilibrium on the current account government objective

Answer 4

The government aim to have a relatively stable current account. A small current account deficit is not too much of a problem for a government due to the fact that is makes up a very small proportion of AD value.

Question 5

Balanced government objective

Answer 5

The government will try to ensure that they maintain a balanced budget. If the governments borrowing gets out of control then they can accumulate large amounts of debt which will eventually affect the country’s ability to borrow money at a low rate.

Question 6

Protection of the environment government objective

Answer 6

This is needed in order to prevent the depletion of scarce resources such as oil, without the protection of the environment, future generations may not have access to these resources and therefore future living standards may fall.

Question 7

Greater income equality government objective

Answer 7

Governments will try to avoid high levels of inequality which are associated with unrest amongst citizens as well as other social tensions.