( IBDP – AL )Government macroeconomic objectives

This article have been orientated to suit the learners of All boards as it include topics that are generic for economics learners

Government macroeconomic objectives

There are basically 5 main government macroeconomic objectives the government aim to achieve in order to ensure the social welfare of the people.

  1. Income equality
    1. Income equality is important because this ensures that the gap between the rich and poor is lowered , which makes the economy benefit from a state of social welfare , because if the gap between rich and poor is widened , then the economy might suffer from several huge problem resulting in political and economic instability
    1. Income equality is important for efficient management of the economy although it is not focused on by the government at several countries, all countries with severe economic problems are suffering from income inequality
  2. Achieving economic growth
    1. Economic growth is defined as the increase in the quantity of goods and services produced within an economy from a year to another (in other words it is called the increase in the real GDP from a year to another)
    1. Economic growth is important because this means that country can decrease the level of unemployment since more organizations will be operating to increase the level of production but high levels of economic growth might also be harmful for the economy , since inflation might occur due to the increase in the aggregate demand for goods and services , this increase in the aggregate demand might be driven from the increase in the level of employment as workers will be enjoying more money to spend on goods and services
  3. Decreasing the rate of inflation (Price stability)
    1. Inflation is the increase in the average prices of goods and services within an economy during a specific year
    1. Zero inflation and even deflation(decrease in the price level) might be very harmful for the economy because they might result in less incentive for producers to accumulate resources , thus , governments might look toward keeping a low rate of inflation (defined by most government at 2%)
  4. Achieving stability in balance of payments
    1. The  balance of payments is the statement that shows all the inflows of the resources to the country and even all the outflows of resources away from the country , it also shows the imports and exports of goods and services for the country
      1. Imports : goods and services bought from other countries
      1. Exports : goods and services sold to other countries
    1. The government aim to achieve stability in the balance of payments because both surplus or deficit in the balance of payment might be harmful for the economy, deficit (Imports> Exports) means leakage of resources away from the country, also surplus (Imports < Exports) might also be harmful because although more resources entered the country, this means that the levels of income of the people increased and this might lead to inflation.
  5. Lowering unemployment
    1. Unemployment : people who are willing and able to work but cannot find a job
    1. The government aims to decrease unemployment in order to decrease the level of government spending on unemployment benefits , and this funds would rather be used for other economic development aspect (the opportunity cost of unemployment benefits paid to the people is the healthcare or security budget that might be needed to be reduced)