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Macroeconomic Objectives (2020 Update)

  • Levels: AS, A Level, IB, BTEC Level 3, BTEC Tech Award
  • Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC

What are the main objectives of macroeconomic policy in countries such as the UK. This updated revision video covers the key ones.

Understanding Macroeconomic Objectives (2020 Update)

Macroeconomic Objectives

  • Sustainable and balanced economic growth (real GDP)
  • Control of cost and price inflation (e.g. via an inflation target)
  • High employment rate, low unemployment, reduced inactivity in the labour market
  • Improved productivity, international competitiveness
  • Sustainable overseas trade balance in goods and services / current account
  • Improved public services, sustainable government finances (both borrowing and debt)
  • More equitable final distribution of income and wealth (lower inequality)q
  • Improved national well-being

Key Definitions

Sustainable Economic Growth

Economic growth is a long-term expansion of the productive potential of the economy. Sustainable growth meets the needs of current generations without damaging the natural capital available for future generations of citizens.

Price Stability

Price stability exists when average consumer prices for goods and services are constant over time, or when they are rising at a low and predictable rate. In the UK, the inflation target for the consumer price index is an annual increase of 2 per cent.

Unemployment and the unemployment rate

Unemployment measures people without a job who have been actively seeking work within the last four weeks and are available to start work within the next two weeks.

The unemployment rate is the proportion of the economically active population (those in work plus those seeking and available to work) who are unemployed.

Productivity

Productivity is a measure of supply-side efficiency. It can be measured in several ways including output per hour, output per job and output per worker employed.

Trade Balance

The trade balance measures the difference between the value of exports of goods and services (X) and imports of goods and services (M). If X>M, a country is running a trade surplus. If M>X, a country is running a trade deficit.

Government Budget Balance

The budget balance is the gap between government expenditure and tax revenues. The budget is in surplus when tax revenues are greater than expenditure. If tax revenues are lower than government spending, there is a budget deficit financed by borrowing.

Government (National) Debt

The national debt is the government's stock of outstanding debt. The national debt can be expressed in billions of pounds, or as a percentage of national income (GDP).

Income Inequality (Lorenz Curve)

A Lorenz curve is created by ranking households from poorest to richest and graphing the cumulative share of household income and the cumulative share of households.

Income Inequality (Gini Coefficient)

The Gini coefficient is a measure of the degree of income inequality, where zero represents complete equality and 1 represents complete inequality.

Economic Wellbeing

Well-being looks beyond what a country produces (i.e. GDP and GDP per capita) to areas such as health, relationships, education and skills, what we do, where we live, our finances and the environment. It includes our day-to-day emotions such as happiness and anxiety.

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