Government macroeconomic policy objectives
The five objectives
- price stability — low, steady inflation (often ~2%),
- full employment — jobs for almost all who want them,
- economic growth — rising real output,
- balance of payments stability,
- redistribution of income — a narrower rich–poor gap.
Practice
Which is a main macroeconomic policy objective?
The five aims are price stability, full employment, growth, balance of payments and redistribution.
Conflicts between objectives
- growth vs inflation — fast growth pulls prices up.
- growth vs balance of payments — higher incomes → more imports.
- unemployment vs inflation — raising demand cuts jobs but can raise prices.
- growth vs environment — more output → more pollution.
- Tools: fiscal and monetary are demand-side; supply-side works on AS.
Practice
Fast economic growth often conflicts with which objective?
Fast growth raises aggregate demand, which can pull prices up — conflicting with low inflation.
Practice
Fiscal and monetary policy are both:
Fiscal and monetary policy work on aggregate demand; supply-side policy works on aggregate supply.
You've got it
Key idea
- five aims: price stability, full employment, growth, balance of payments, redistribution
- they conflict (growth ↔ inflation; growth ↔ imports; jobs ↔ inflation)
- fiscal + monetary = demand-side; supply-side = aggregate supply