Showing posts with label Macroeconomic Objectives. Show all posts
Showing posts with label Macroeconomic Objectives. Show all posts
Macroeconomic Objectives - Conflicts
A look at the possible conflicts between different macro-economic objectives.
The main macro economic objectives are:
- Positive and sustainable economic growth (UK, long run trend rate is around 2.5%)
- Low inflation (UK target 2% +/-1)
- Low unemployment / Full employment (e.g. around 3%)
- Satisfactory current account on balance of payments (i.e. avoid big current account deficit)
- Low government borrowing
- Exchange rate stability
You could also consider:
- Issues of equity
- Environmental factors (long run environmental sustainability)
Economic Growth vs Inflation
The main conflict can come between economic growth and inflation (which leads to a similar conflict between unemployment and inflation). When the economy expands it is more likely that inflationary pressures will increase. Inflation is particularly likely to occur when growth is above the long run trend rate, and AD increases faster than AS.
Macroeconomic Objectives
- Objectives are the goals of government policy
- Instruments are the means by which these aims might be achieved
For example, the government might want to achieve an objective of a low rate of price inflation. The main instrument to achieve this are changes in monetary policy interest rates, since 1997 they have been set by the Bank of England. Fiscal policy could be another instrument to achieve this aim. This is in the hands of the government. Supply-side policies can also be used to control inflation and promote growth over the longer-term.
The government might have another objective to make the distribution of income more equal. It would then choose the policy instruments it thinks are best suited to reaching to this aim, perhaps a change in the income tax system or a rise in the national minimum wage.
The main policy instruments available to meet macroeconomic objectives are
- Monetary policy –changes to interest rates, the supply of money and credit and also changes to the value of the exchange rate
- Fiscal policy – changes to government taxation, government spending and borrowing
- Supply-side policies designed to make markets work more efficiently
Objectives of UK Macroeconomic Policy
The key objectives for the UK are:
- Stable low inflation - the Government’s inflation target is 2.0% for the consumer price index.
- Sustainable growth – growth of real gross domestic product – sustainable in keeping inflation low and reducing the environmental impact of growth.
- Improvements in productivity – this is designed to improve competitiveness and global trade performance
- High employment - the government wants to achieve an increase employment and eventually a situation where all those able and available can find meaningful work
- Rising living standards and a fall in relative poverty – cutting child poverty and reducing pensioner poverty.
- Sound government finances - including control over state borrowing and the total national debt
Macroeconomic Objectives
Economic policy is the deliberate attempt to generate increases in economic welfare. Since the late 1920s, when many advanced economies were on the brink of complete collapse, economists have recognised that there is a role for government and monetary authorities in steering a macro-economy towards increased economic welfare.
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