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Economic Growth

Macroeconomic policy objectives and the conflicts between them

  • 3 things to know
  • All three components

Overview

Four main macroeconomic policy objectives, growth objective usually and two further macroeconomic objectives a government may pursue.

What you need to know

Answer each one before you reveal it.

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Key term

Name the four main macroeconomic policy objectives.

Key term

Why do governments attempt to achieve low inflation?

Key term

Why do governments attempt to achieve low unemployment?

Questions from this subtopic

Each one with the model answer underneath.

  1. 1

    Name the four main macroeconomic policy objectives.

    Model answer

    Governments aim for low and stable inflation, low unemployment and sustainable economic growth. Equilibrium in the current account of the balance of payments is the fourth objective.

  2. 2

    Why do governments attempt to achieve low inflation?

    Model answer

    Low inflation protects the real value of savings and of fixed incomes. Stable prices also allow firms to plan investment with more confidence.

  3. 3

    Why do governments attempt to achieve low unemployment?

    Model answer

    Low unemployment raises national output and reduces spending on welfare benefits. Widespread joblessness also carries social costs that governments wish to avoid.

  4. 4

    What does the growth objective usually mean in practice?

    Model answer

    The growth objective means a steady rise in real gross domestic product over time. Sustainable growth avoids the inflation and external problems that very rapid growth brings.

  5. 5

    Why does a government attempt to achieve equilibrium in the current account?

    Model answer

    A persistent current account deficit must be financed by borrowing from abroad or by selling assets. Equilibrium avoids the build-up of external liabilities.

  6. 6

    Name two further macroeconomic objectives a government may pursue.

    Model answer

    Many governments also pursue sound public finances and a fairer distribution of income. The two aims sit alongside the four traditional targets.

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