Possible Macroeconomic Objectives

Tuesday, 22nd March 2022

Govt Objectives
Typically, govt’s have macroeconomic objectives relating to 4 variables: 1. econ growth, 2.
unemployment, 3. inflation and 4. current account on the balance of payments
They also have objectives involving 5. govt budgets, 6. environment and 7. income
inequality
So, in total there are 7 objectives

Econ Growth
Ceteris paribus, govt seek to maximise the growth rate of their economy to maintain a high
international status
High rates of growth can be achieved by low- and middle-income countries by increasing
productivity this can be done by using modern tech, therefore will significantly increase
output/worker
High income countries would increase growth through technological developments

Unemployment & Employment

It is impossible to have zero unemployment in a market econ as there is always fractional
and seasonal unemployment
Higher employment should increase tax revenues and reduce welfare benefits to the
unemployed and those on low incomes

Inflation & Deflation

Central banks and Govts tend to set the inflation targets of around 2% - this s low but +ve
inflation
Higher inflation seen as undesirable as it can increase as you go on
Govts want to avoid deflation as its seen as being linked recession and low/negative econ
growth
Balance of Payments on Current Account
Economies where current acc is persistently in surplus, are seen as strong economies others
seen as ‘weak’ or ‘struggling’
However, countries can run on a surplus and have low econ growth rates
Large current acc deficits, measured as a % of GDP, can be dangerous – if they borrow and
reach a point where they can’t repay there will be a econ crisis and large falls in GDP

Govt Budgets
If fiscal deficits grow to over 10% of GDP, these levels are unsustainable in the long term
because it means govt must borrow far more money than they expect to pay with interest in
the future
Some argue fiscal deficit should be cut as quickly as possible as it can significantly increase
unemployment, others argue that cutting it at a slower pace allows the econ to grow faster,
leading to a quicker rebound in tax revenues and fall in welfare payments to unemployed

Environment
I.e. - global warming, pollution etc
Environments tend to be anti-growth that increasing econ activity destroys the planet
However, increases in output ad improvements in tech allows the econ to clean up the
enviro and reduce pollution

Income Inequality
Right wing economists argue that the inequality is positive because it increases incentives to
work and to take economic risks, this increases econ growth rates, rising incomes for all in
society
So, they reduce policies against equality.
Left wing economists argue the principles of fairness and everyone in society should have
access to certain standards of living
Thus, govts must intervene by setting minimum wages or max prices for essential goods
They can also provide health care and education free to every citizen to fund this through
high taxes on high earners
Also claim that inequality is not correlated to econ growth as individuals will work and take
risks even if marginal tax rates are high
In my opinion the order of these objectives should be: 3,1,4,2,5,6,7
This is because if we try accomplishing the objectives from the start of my list it should be
easier to complete the others in order and also that the objectives near the end will have
minimal effect on the economy compared to the other before them.

Tale of Four Economics

UK, USA, Germany & Japan are 4 of the largest economies in the world. An ageing
population, a high savings rate and deflation help dampen the growth of domestic demand
as it doesn’t for example help the circular flow of income. UK, from 2010, had saw major
govt spending cuts and rises in taxes to reduce the govt budget deficit where their spending
outweighed their revenue.