2.6.1 Possible macroeconomic objectives

MACROECONOMIC OBJECTIVES

• economic growth

• low unemployment

• low and stable inflation

• balance of payment equilibrium on the current account

• balance government budget

• protection of environment

• greater income equality

ECONOMIC GROWTH

• UK- long run trend of economic growth is about 2.5%

• govs aim to have sustainable economic growth for long run

• emerging and developing economies- govs might aim to increase economic development before economic growth, which will improve living standards, increase life expectancy and improve literacy rates

LOW UNEMPLOYMENT

• govs aim to have as near to full employment as possible

• account for frictional unemployment by aiming for an unemployment rate of around 3%

• labour force should also be employed in productive work

LOW AND STABLE INFLATION

• UK- gov target is 2% , measured by CPI

• aims to provide price stability for firms and consumers and will help them make decisions for long run

• if inflation rate falls 1% outside target, Governor of BoE has to write a letter to Chancellor of the Exchequer to explain why this has happened and what Bank intends to do about it

BALANCE OF PAYMENT EQUILIBRIUM ON CURRENT ACCOUNT

• important to allow country to sustainably finance current account, which is important for long term growth

BALANCE GOVERNMENT BUDGET

• ensures gov keeps control of state borrowing, so national debt does not escalate

• allows govs to borrow cheaply in future should they need to and makes repayments easier

PROTECTION OF ENVIRONMENT

• aims to provide long run environmental stability

• ensures resources used are not exploited (oil and natural gas) and that they are used sustainably, so future gens can access them too

• means there isn’t excessive pollution

GREATER INCOME EQUALITY

• minimises gap between rich and poor

• generally associated with a fairer society