Chapter 30: Macroeconomic Objectives

Chapter 30: Macroeconomic Objectives

One of the two areas that the study of economics can be split into involves looking at the economy as a whole, the entire economy’s performance, structure and behavior. This is macroeconomics.

A government’s performance can often be praised or criticized by how well it manages the economy. There are many economic performance indicators and these often become the government’s aims when managing the economy. These aims are called “Macroeconomic Objectives” and there are four key indicators with a further fifth becoming increasingly important in the modern world. The Macroeconomic Objectives are:

• Economic Growth
• Inflation
• Unemployment
• Current Account Balance
• Protecting the Environment

1. Economic Growth
2. Government wants Economy to Grow.
3. Growth in Economy means an improvement in people’s living standards.
4. One recognized measure of economic growth is GDP.
5. This measures total value of all goods and services over a period of time.
6. Inflation
7. Government does not want inflation to be too high and must aim to keep it low.
8. Inflation is said to exist if the general price level is rising in the economy.
9. If prices are rising at a faster rate than people’s incomes, people will not be able to buy as much and will have a lower standard of living.
10. Inflation complicates business decision-making as the value of money can be distorted, causing uncertainty and possibly stunting growth.
11. Unemployment
12. Government wants to reduce unemployment.
13. A person is considered unemployed if he/she wants to work but is unable to find a job.
14. Unemployment is a waste of ‘recourses’.
15. Unemployment is related to GDP.
16. Unemployment can cost the government money if unemployment benefits are given.
17. Living standards of the unemployed people will be lower compared to those that work.
18. Current Account Balance
19. Government should aim to balance the current account.
20. They try to equal the value of exports to the value of imports, as a country must pay its way when trading with others.
21. Exports are goods and services being sold overseas.
22. Imports are goods and services being bought from overseas.
23. Protect the Environment
24. Government wants to reduce the damage to the environment.
25. Global Warming has alerted people around the world, as there are an increasing number of people concerned about damage done to the environment.

KEY TERMONOLOGY

Macroeconomics- the study of the entire economy; ALL firms, ALL goods and ALL FOPs.

Macroeconomic Objectives- the aims of the government when managing the economy relating to key economic performance indicators.

Microeconomics- the study of individual parts of the economy.