GOVERNMENT

MACROECONOMIC
AIMS
Learning Objectives: Keywords
i. Identify the government's
macroeconomic aims and explain
their importance in the economy. Inflation
(Knowledge)
Unemployment
ii. Analyze macroeconomic data to
evaluate a country's performance in Economic Growth
meeting its macroeconomic aims.
(Skill) Gross Domestic Product (GDP)
iii. Develop an appreciation for the role Price Stability
of government in maintaining a stable
and growing economy. (Attitude) Balance of Payments
The government’s macroeconomic objectives
are:
1. Economic Growth
2. Low Unemployment/Full Employment
3. Low Inflation/Stable Prices
4. Balance of Payment Stability (or
Equilibrium)
5. Redistribution of Income
ECONOMIC GROWTH
Economic growth refers to an increase in the Gross
Domestic Product (GDP), the output of goods and
services produced in the economy, over a period of time.
More output means economic growth.

Sustained economic growth will create new business

opportunities and jobs. Output, employment and
incomes will rise and living standards will improve.
LOW UNEMPLOYMENT/FULL EMPLOYMENT
Someone is considered to be unemployed if they do not
have a job & are actively seeking for one.
Government reduces unemployment and expand
employment opportunities so that more people will be in
paid work and earning regular incomes.
As employment increases, total output will expand,
consumer spending will rise, more business opportunities
are created and government spending on welfare can be
reduced as living standards improve.
LOW INFLATION/STABLE PRICES
Inflation is the continuous rise in the average price levels in an
economy during a time period.
A low rate of inflation is desirable as it is a symptom of
economic growth. This is why most economies have a target
inflation rate of 2%.
A low & stable rate of inflation is important as it allows firms to
manage their cost and confidently plan for future investment,
offers price stability to consumers, especially those on low
incomes so they can continue to buy the goods and services
they want and need.
BALANCE OF PAYMENT STABILITY
The Balance of Payments (BoP) for a country is a record of all the
financial transactions that occur between it and the rest of the
world.

Exports > Imports = Surplus/Favourable in BoP

Imports > Exports = Deficit/Unfavourable in BoP

A favourable balance of payments provides opportunities for

businesses to export their goods and services overseas. It also
provides jobs and incomes and ensures the economy can afford to
import a wide variety of goods and services to satisfy consumer
needs and wants.
REDISTRIBUTION OF INCOME
The redistribution of income aims to reduce income inequality in
an economy.
To reduce the inequality of income among its citizens, the
government will redistribute incomes from the rich to the poor by
imposing taxes on the rich and using it to finance welfare schemes
for the poor.
All governments struggle with income inequality and try to solve
it because:
i. widening inequality means higher levels of poverty
ii. poverty and hardship restricts the economy from reaching
its maximum productive capacity.