Macroeconomics/Macroeconomic Objectives

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Macroeconomic objectives[edit | edit source]

Broadly, the objective of macroeconomic policies is to maximize the level of national income, providing economic growth to raise the utility and standard of living of participants in the economy. There are also a number of secondary objectives which are held to lead to the maximization of income over the long run. While there are variations between the objectives of different national and international entities, most follow the ones detailed below:

  1. Sustainability - a rate of growth which allows an increase in living standards without undue structural and environmental difficulties. 'Economic growth' will be studied later on in this book.
  2. Full employment - where those who are able and willing to have a job can get one, given that there will be a certain amount of frictional, seasonal and structural unemployment (referred to as the natural rate of unemployment).
  3. Price stability - when prices remain largely stable, and there is not rapid inflation or deflation. Price stability is not necessarily the same as zero inflation, but instead steady levels of low-moderate inflation is often regarded as ideal. It is worth noting that prices of some goods and services often fall as a result of productivity improvements during periods of inflation, as inflation is only a measure of general price levels. However, inflation is a good measure of 'price stability'. Zero inflation is often undesirable in an economy. ("Internal Balance" is used to describe a level of economic activity that results in full employment with no inflation.)
  4. External Balance - equilibrium in the Balance of payments without the use of artificial constraints. That is, the value of exports being roughly equal to the value of imports over the long run.
  5. Equitable distribution of income and wealth - a fair share of the national 'cake', more equitable than would be in the case of an entirely free market. Like the other economic objectives, the distribution of income is a partly subjective or normative issue
  6. Increasing Productivity - more output per unit of labour per hour. Also, since labor is but one of many inputs to produce goods and services, it could also be described as output per unit of factor inputs per hour.
  7. Trade Equilibrium - equilibrium in the Balance of payments without the use of artificial constraints. That is, exports roughly equal to imports over the long run.

Further Reading[edit | edit source]