Government macroeconomic intervention
The five aims
- Governments manage the macroeconomy with five main aims:
- economic growth (more output each year),
- full employment (low unemployment),
- price stability (low inflation),
- balance of payments stability,
- redistribution of income (a fairer gap).
Practice
Which is a government macroeconomic aim?
The five aims are growth, full employment, price stability, balance of payments and redistribution.
They can conflict
- Aims can conflict: fast growth or cutting unemployment can pull prices up (inflation).
- So a government must balance its aims.
- It has three sets of tools: fiscal, monetary, and supply-side policy.
Practice
Fast economic growth often conflicts with the aim of:
Fast growth raises demand, which can pull prices up — clashing with low inflation.
Practice
The three sets of government policy tools are fiscal, supply-side and:
Fiscal (spending/tax), monetary (interest rates) and supply-side policy manage the economy.
You've got it
Key idea
- five aims: growth, full employment, price stability, balance of payments, redistribution
- aims conflict (growth ↔ inflation), so they must be balanced
- tools: fiscal, monetary, supply-side