Possible macroeconomic objectives

A) Economic growth

The government aim to achieve strong, sustained and stable levels of economic growth. This is to try and reduce the effects of the economic cycle, such as the large fluctuations of economic growth. A sustainable long term economic growth rate is around 3 or 4 percent.


B) Low unemployment

The government aim to have an unemployment rate of around 5%, which is close to the full employment rate. This allows for some frictional unemployment within the economy, allowing workers the time to find jobs which they’re suited to and therefore are likely to stay in for a long time.


C) Low and stable rate of inflation

A stable inflation rate is around 2 to 3 percent. This encourages consumers to spend their money sooner and offers price stability to consumers, firms and foreign investors. Price stability encourages foreign investors and firms to invest. This is due to the fact that they’re able to make long term decisions knowing that the probability of these decisions won’t change as a result of large decreases or increases in the inflation rate.


D) Balance of payments equilibrium on current account

The government aim to have a relatively stable current account i.e. not a large deficit. A small current account deficit is not too much of a problem for a government due to the fact that it makes up a very small proportion of the AD value. This is why some countries such as the UK are happy to run a small trade deficit.   


E) Balanced government budget

Governments try to ensure that they maintain a balanced budget. If the government’s borrowing gets out of control, then they can accumulate large amounts of debt which will eventually affect the country’s ability to borrow money at a low interest rate. This is why governments may aim to reduce the budget deficit to around 2%, or try to run a budget surplus. The conservative government in the UK have become more and more focused on the budget deficit as time has gone by and have recently achieved the first budget surplus since 2001.


F) Protection of the environment

This is needed in order to prevent the depletion of scarce resources such as oil. Without the protection of the environment, future generations may not have access to these resources and therefore future living standards may fall by a large amount. In addition to this, governments may aim to reduce pollutions and the emission of fossil fuels in order to prevent the negative externalities associated with this, such as the health problems it causes for people with asthma or the damage it does to wildlife.


G) Greater income equality

Governments will try to avoid high levels of inequality which are associated with unrest amongst citizens as well as other social tensions. Although this is the case, some income inequality is still desirable due to the fact that without income inequality there would be no incentive for citizens to work hard or innovate. Governments aim to have a Gini coefficient of around 0.3-0.4 where 0 represents everyone having the same income and 1 represents a single individual receiving all of the income.