Macroeconomic Objectives Of Government

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A government’s macroeconomic objectives are the aims a government hopes to achieve through its policies. These objectives include stable economic growth, low unemployment, a stable balance of payments and exchange rate, minimal inequality, and the protection of the environment, amongst other things. A government may have more than one objective at a time. This however can lead to a conflict between objectives.

One of the objectives that a government may have is the objective of a low rate of inflation. Inflation is the sustained rise in price levels in an economy. It is measured as the annual rate of change in the retail price index. Governments aim to keep this stable or low as a high rate of inflation reduces standards of living and reverses
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The balance of payments records all inflows and outflows of money from the country. A balance of payments equilibrium or surplus indicates that an economy can pay for its imports through its exports. If there is a continuous BOP deficit, it may deplete a countries foreign currency reserves. This may lead to a need to borrow and pay interest on the loans, which becomes a great burden on society. These two may conflict when there is a change in demand for exports. A change in demand for exports may change the demand for the domestic currency, causing the exchange rate to fluctuate. A fluctuating exchange rate can discourage investment in a country and reduces exports as well. It harms the…show more content…
Economic growth is measured as the rate of change of real GDP, where GDP is a measure of all final goods and services produced in an economy over a given period of time, evaluated at market price. Governments now try to aim for sustainable growth which implies growth without inflation.
In an effort to achieve economic growth a government may use an expansionary monetary or fiscal policy. Expansionary monetary policy is the use of money supply and interest rate to increase aggregate demand. This would lead to an increase in national income by a multiple. Here, economic growth would be achieved but it may undermine the objective of a balance of payments surplus. A rise in national income may increase the demand for imports as they are positively associated with national income. The rise in demand for imports may reduce a trade surplus, and could also turn it into a trade deficit.

When an economy has a stable rate of economic growth, it produces more output. This increased output will result in increased pollution harming the environment. Though it is important for an economy to grow, a cleaner and safer environment adds to the standard of living, and also reduces healthcare costs in an

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