- The macroeconomic aims of the government include economic growth, low unemployment, balance of payments stability , redistribution of income and a low and stable inflation rate
- When an economy experiences economic growth, the output of the economy increases in the short run, this is called actual economic growth
- For the economy to keep this up it must be able to increase/improve its ability to produce output, this called potential economic growth
- Governments want to achieve economic growth so that more goods and services can be produced in the economy which will help raise the living standards of the people, thus improving the quality of life
- Employment will also increase as a result of an increase in output and increase in demand in the market, so the government can achieve its other macroeconomic aims through economic growth as well
- Governments want as many people to work as possible and therefore wish achieve full employment
- Unemployment is a waste of available resources and the unemployed may suffer from poverty due to low incomes which may thus lead to the vicious cycle of poverty
- Price stability occurs when the prices in an economy dont fluctuate over time and remain highly unchanged
- Governments want to achieve price stability as this helps to prevent the loss of international competitiveness of the products of an economy and creates greater greater economic certainty within the country and prevents consumers from taking unnecessary measures which could potentially increases prices in the future
- Inflation occurs when the prices of goods and services in an economy rise over time
- The rate of inflation is the percentage increase in the prices of goods and services over time
- Governments don’t aim for unchanged prices because:
- 1- A rise in inflation may overstate the increases in prices, for example a car manufacturer may add new technology into the car such as bluetooth connection or navigation and would raise the price but people would not notice the improvements made due to the increase in the price
- 2- In certain cases an increase in price can benefit people. For example it can motivate workers to work harder so that they can earn higher incomes and motivate producers to produce more and increase their output so they can increase their sales and revenue- Income inequality may increase the poverty rate in an economy which the government wishes to avoid
- Without government intervention income inequality will keep growing as the rich will marry the rich and so on, hence government intervention such as raising taxes on the rich is necessary to redistribute income in an economy
- Full employment may conflict with price stability as the increase in demand in the market may result in a shortage, so producers will have to increase prices so their products don’t go out of stock, this will increase inflation
© 2020 Knowledge Unbound
Designed By Shikhar Beriwal |