Possible Objectives
Economics: Edexcel A A Level, topic 4.1.1
Objectives of Government Economic Policy
Government macroeconomic policy can be used to achieve a range of objectives. Objectives are the goals of government policy. Governments try to achieve aims using instruments.
Sustainable economic growth
- Economic growth is defined as an increase in real GDP. That is an increase in the real value of goods and services produced in an economy in a given period of time.
- Governments aim for sustainability - in terms of the environmental impact, but also in terms of promoting long-term growth that avoids busts.
- Higher economic growth leads to rising real incomes and a higher standard of living.
Price stability
- Most governments aim to keep inflation, or the rate of increase in prices, low and stable.
- Price stability can be measured in different ways. The most common of which is changes in CPI (The Consumer Price Index).
- Governments have different inflation targets e.g. the UK government target for inflation is 2%, whereas India is 4%.
Low unemployment
- Governments aim to have low unemployment.
- Full employment is not 0% unemployment because there will always be some people temporarily unemployed.
Sustainable fiscal deficit and national debt
- A fiscal deficit is when a government spends more than it receives in tax revenue in a given time period.
- So, governments must borrow. Governments will aim to reduce this amount of borrowing.
- If interest payments on the national debt are high, this has a high opportunity cost – this is money that could be spent on education or hospitals.
- Government debt is 'public debt'. The debt owed by households is 'consumer household debt'.
Low income inequality and poverty
- Governments do not tend to have explicit targets for inequality and poverty but they do not want it to get too large.
- High inequality and poverty can lead to social unrest as well as impact the standard of living.
- Inequality can be measured in different ways, the most popular of which is known as the Gini Coefficient.
Stable current account
- Although governments do not have explicit targets for the current account, they do try to improve their international competitiveness.
- So exports are promoted.