Question

You have been invited to advise a new president on the economic path of the new state. Discuss five key macroeconomic objectives of an economy. In your discussion discuss the variables used to measure how an economy is performing with respect to each objective and how these variables are measured. Provide reasons as to why each objective is important to a well-functioning economy and hence should form the government’s priority.

Answer 1

Five key macroeconomic objectives of an economy.

There are mainly five objectives that the economists differentiate in the case of macro economic policy. These objectives combine together for a sustained, well-build and better development of the economy. They are :-

• Complete employment
• Balance of payment equilibrium
• Equality in income
• Price stability
• Economic growth

Complete employment ensures labor productivity and efficiency. This in turn brigs up economic development. Hence, rate of unemployment will be computed for determining the unemployment level in the nation. Now, count taken by International Labor Organization is used. This count contain unemployed young ones, unemployed married woman and who come under sickness claim. All of them must have certain inconvenience for taking job.

Balance of payment equilibrium represents a nation's connection and association with foreign countries. A nation have accounts and records of in between transactions, value of imports and exports, savings etc. Current account, capital and financial accounts are the two measures used in the computation of balance of payments. Among these two accounts, current account has more significance. Because this gives an idea regarding the efficiency of a nation in case of exports and imports.

Equality in income is computed with the help of Lorenz curve and Gini coefficient. It shows the income distribution among citizens.

Price stability shows the variations in prices of products as well as services. Reasons for inflation will be determined here. Variations in Retail Price Index is used for measuring change in inflation. Thus government can avoid inflation and those interest rates which may cause deviation on price.

Economic growth helps to find out the GDP rate, which means the aggregate production of both services and products. Through GDP, it can be easy to analyse yearly expenditure and income of an economy as a whole. It includes Private as well as public industries.