Government macroeconomic policy objectives
Objectives and tools
| Objective | Measured by |
|---|---|
| economic growth | % change in real GDP |
| price stability | % change in the CPI |
| full employment | the unemployment rate |
| balance of payments | the current account balance |
- Three tools: fiscal (spending/taxes), monetary (interest rate/money supply), supply-side (capacity/productivity).
- Fiscal + monetary mainly work on AD (quick but can cause inflation); supply-side works on capacity (slow but lasting).
Practice
Match each objective to how it is measured.
Each macro objective has a standard indicator.
Practice
Which tool works mainly on the economy's capacity rather than demand?
Supply-side policy raises capacity/productivity; fiscal and monetary policy work on aggregate demand.
Practice
Fiscal and monetary policy are quick to act but can cause inflation.
Demand-side tools act fast on AD but risk inflation; supply-side is slower but lasting.
You've got it
Key idea
- objectives: growth, price stability, full employment, balance of payments
- tools: fiscal, monetary (both demand-side), supply-side
- demand-side = quick but inflation-risk; supply-side = slow but lasting