Government macroeconomic intervention
| English | Chinese | Pinyin |
|---|---|---|
| macroeconomic aims | 宏观经济目标 | hóng guān jīng jì mù biāo |
| economic growth | 经济增长 | jīng jì zēng zhǎng |
| unemployment | 失业 | shī yè |
| inflation | 通货膨胀 | tōng huò péng zhàng |
| balance of payments | 国际收支 | guó jì shōu zhī |
| income distribution | 收入分配 | shōu rù fēn pèi |
| fiscal policy | 财政政策 | cái zhèng zhèng cè |
| monetary policy | 货币政策 | huò bì zhèng cè |
| supply-side policy | 供给侧政策 | gōng jǐ cè zhèng cè |
What governments are trying to do
- Every government wants a healthy economy — but "healthy" means several things at once, and they can pull against each other.
- These goals are its macroeconomic aims 宏观经济目标.
Which are macroeconomic aims of government? (Select all that apply.)
Government aims for the whole economy, not one firm.
Keeping inflation low and steady is the aim of stable ______.
Price stability means low, predictable inflation.
The main aims
- Economic growth 经济增长 — rising output and incomes.
- Low unemployment 失业 — most people who want jobs have them.
- Stable prices — low, steady inflation 通货膨胀.
- Balance of payments 国际收支 stability and fairer income distribution 收入分配.
The three sets of government macro policy tools: fiscal (spending and taxes), monetary (interest rate and money supply), and supply-side (capacity and productivity)
Managing aggregate demand
Government policy moves aggregate demand against aggregate supply to steer output and the price level.
Which pair of aims can conflict?
Fast growth can stoke inflation, so the two aims can conflict.
Raising interest rates to fight inflation can increase unemployment.
Cooling demand reduces inflation but can cost jobs — a trade-off.
Aims can conflict
- Pushing growth and jobs can stoke inflation.
- Cutting inflation with high interest rates can raise unemployment.
- Governments must constantly trade off one aim against another.
Worked example. To fight rising inflation, a central bank raises interest rates. Borrowing falls, demand cools, prices steady — but firms invest less and unemployment may rise. One aim improves, another worsens.
Match each policy to its main tool.
Fiscal = budget; monetary = rates; supply-side = capacity.
The policy toolkit
- Fiscal policy 财政政策: government spending and taxation.
- Monetary policy 货币政策: interest rates and the money supply.
- Supply-side policy 供给侧政策: measures to raise productivity and capacity.
You've got it
- macro aims: growth, low unemployment, stable prices, balance of payments, fair distribution
- the aims often conflict — growth vs inflation, inflation vs jobs
- three policy types: fiscal, monetary, supply-side