Governments aim for growth, low unemployment, low inflation, a stable balance of payments, fairer income and sustainability.
Macroeconomics studies the whole economy. Governments usually have six macroeconomic aims. Economic growth: a rising output of goods and services. Full employment, or low unemployment: jobs for those who want to work. Stable prices, or low inflation.
Balance of payments stability: no large, lasting deficit or surplus in trade with other countries. Redistribution of income: a fairer spread of income between rich and poor. Environmental sustainability: growth that does not use up resources or harm the environment for future generations.
Governments choose aims because each improves living standards. Growth raises incomes. Jobs give people income and dignity. Low inflation protects the value of money and helps firms plan.
Governments often set criteria, or targets, for each aim. Examples are steady growth of a few per cent a year, inflation of around 2%, and a low unemployment rate.
- Six aims
- Growth, full employment, stable prices, BOP stability, redistribution, sustainability.
- Criteria
- Targets such as 2% inflation or 2-3% growth.
Worked example: Turning aims into targets
Here is how a government might express its aims as criteria.
- Growth: real GDP to grow by 2% to 3% a year.
- Inflation: consumer prices to rise by around 2% a year.
- Unemployment: kept low, for example below 3% of the labour force.
- Sustainability: cut carbon emissions to an agreed level by a target year.
Watch out for this
Governments want inflation to be zero.
Most governments aim for low and stable inflation, around 2%, not zero. Falling prices can make people delay spending, which can harm the economy.
Check your understanding
Which is a macroeconomic aim of government?
- Low and stable inflation
- Maximising the profit of state firms
- Raising the price of all imports