Study Notes
Macroeconomic objectives are the goals that governments aim to achieve to ensure a stable and prosperous economy. These include economic growth, price stability, full employment, balance of payments stability, and income redistribution.
- Economic Growth — an increase in the gross domestic product (GDP) over time. Example: More output means economic growth.
- Price Stability — maintaining a low and stable inflation rate. Example: Targeting an inflation rate of 3% per year.
- Full Employment — achieving a low level of unemployment in the economy. Example: Reducing unemployment benefits and increasing national output.
- Balance of Payments Stability — balancing exports and imports to avoid deficits. Example: Exports greater than imports result in a surplus.
- Income Redistribution — reducing income inequality through taxation and welfare. Example: Taxing the rich to fund welfare schemes for the poor.
Exam Tips
Key Definitions to Remember
- Economic Growth
- Price Stability
- Full Employment
- Balance of Payments Stability
- Income Redistribution
Common Confusions
- Confusing economic growth with economic development
- Misunderstanding the difference between inflation and deflation
Typical Exam Questions
- What is economic growth? An increase in GDP over time.
- How does inflation affect purchasing power? It reduces purchasing power as prices rise.
- What is a balance of payments deficit? When imports exceed exports.
What Examiners Usually Test
- Understanding of macroeconomic objectives
- Ability to explain conflicts between objectives
- Knowledge of how governments achieve these objectives