Macroeconomic Objectives 2.6 Flashcards
7 Macro Objectives
Economic Growth Low unemployment (often 3%) Low & Stable inflation (2%) Balance of Payments equilibrium on Current Account Balanced Government Budget Protection of the environment Greater income equality
Economic Growth
Can improve citizen lives by increasing their income
Less developed countries can reach high rates of growth 10%+ as they invest in infrastructure, education access
Developed countries have already done this, thus are more likely to have growth of 2-3%
Low unemployment
Around 4% is good, anything under this is likely to be coupled with rising inflation
0% unemployment is virtually impossible due to frictional & seasonal unemployment
Low & Stable Inflation
Central Target is 2%
This is because it keeps business & consumer confidence high, anything above this will discourage investment, below will also as ‘death spiral’ occurs.
Balance of Payments Equilibrium on Current Account
Large persistent surplus could mean that citizens are not enjoying the quality of life they could with more imports, while a large deficit increases indebtedness and in severe occasions a country may have to default on their debts
Balanced Government Budget
In the long term, governments will try to match gov. spending with tax revenues to reduce debt or prevent it getting out of hand.
This happened in Greece after the financial crisis 2008. Debt was more than double GDP and banks became unwilling to lend them any more. To combat this, they made huge cuts to government spending and this led to a severe recession.
After 2008 some govs dealt with debt by huge cuts, Austerity in the UK which led to an increase in poverty. US employed fiscal policy
Inequality
Left-wing economists see inequality as socially unjust, Right-wing tend to take the view that it is a natural consequence of the free market. Point to countries such as Norway & Sweden, high taxes, generous benefits, far less inequality than UK & US
