Macroeconomic Objectives. The government’s main macroeconomic objectives are 1) High economic growth, 2) Low unemployment, 3) Low and stable inflation and 4) A current account surplus or low deficit.
The government has four main macroeconomic objectives for the economy:
- High Economic Growth. Basically the government aim for high economic growth because as real GDP increases, incomes grow so consumers can buy more goods and living standards rise. Also, the government earns more tax revenue because more income tax and corporation tax is paid. Additionally, because consumers are spending more, firms make more profit so investment increases and the economy becomes more efficient in the long-run.
- Low and Stable Inflation. An inflation rate of 2% plus or minus 1% (measured by the CPI) is targeted. Low inflation is targeted because inflation devalues money and consumers’ real income so less can be bought and living standards fall. Low inflation also means domestic prices are low so domestic consumers buy more domestic goods and less imports, foreign consumers buy more domestic goods so exports rise and the current account moves towards a surplus. Stable inflation makes it easier for firms to plan and invest, and investment is key for long-run economic growth because it increases the productive capacity of the economy.
- Low Unemployment. Low unemployment is desired because consumers earn an income so they can buy goods and increase their living standards. Moreover, low unemployment means the economy is operating near its full capacity, so the minimal amount of resources are wasted. Furthermore, low unemployment means most people are earning an income so crime rates should fall.
- Current Account Surplus (or Low Deficit). The government aims for a current account surplus to make exports greater than imports, boost AD and real GDP.
The government have two additional macroeconomic objectives:
- A More Equal Income Distribution. As economic growth occurs, the rich get richer faster than the poor get richer so income distribution worsens. This is because the rich own capital like machinery and factories so the rich make a lot of profit and pay the poor wages.
- Environmental Protection. Environmental protection is important because economic growth must be sustainable, the needs of future generations must not be compromised by current consumption.