Page 11 - DECO201_MACRO_ECONOMICS_ENGLISH

Macro Economics

Notes goods and services and the level of prices. The aggregate supply curve specifies the
relationship between the amount of output firms produce and the price level. Shifts in
either aggregate supply or aggregate demand will cause the level of output to change –
thus affecting growth – and will also change the price level - thus affecting inflation.

Task Find out the current inflation rates in India, China, USA, Brazil, Zimbabwe and
Japan. Also find out the highest ever inflation rates recorded in these countries.

1.3.1 Objectives

Objectives refer to the aims or goals of government policy whereas instruments are the means
by which these aims might be achieved and targets are often thought to be intermediate aims -
linked closely in a theoretical way to the final policy objective.

If the government might want to achieve low inflation, the main instrument to achieve this
might be the use of interest rates and a target might be the growth of consumer credit or perhaps
the exchange rate.
Broadly, the objective of Macro Economic policies is to maximise the level of national income,
providing economic growth to put on a pedestal the utility and standard of living of participants
in the economy. There are also a few secondary objectives which are held to lead to the
maximisation of income over the long run. While there are variation between the objectives of
different national and international entities, most follow the ones detailed below:
Sustainability: A rate of growth which allows an increase in living standards without
undue structural and environmental difficulties.
Full Employment: Where those who are competent and willing to have a job can get hold
of one, given that there will be a certain amount of frictional and structural unemployment.

Price Stability: When prices remain largely stable, and near is not rapid inflation or
deflation. Price stability is not necessarily the same as zero inflation, but instead steady
level of low-moderate inflation is often regarded as ideal. It is worth note that prices of
some goods and services often fall as a result of productivity improvements during period
of inflation, as inflation is only a measure of general price level.
External Balance: Equilibrium in the balance of payments, lacking the use of artificial
constraints. That is, exports roughly equal to imports over the long run.

Equitable distribution of Income and Wealth: A fair share of the national 'cake', more
equitable than would be within the case of an entirely free market.
Increased Productivity: more output per unit of work per hour.

Only a limited number of policies can be used to achieve the government's objectives. There is
a huge amount of research conducted in trying to determine the effectiveness of different policies
in meeting key objectives. Indeed the debates about which policies are most suitable lie at the
heart of differences between economic schools of thought.
The main instruments available to meet the objectives are:

Monetary Policy: changes to interest rates, the supply of money and credit and changes to
the exchange rate.
Fiscal Policy: changes to government taxation, government spending and borrowing.

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