5.1 Government macroeconomic policy objectives

Common macroeconomic objectives are stable prices, low unemployment, economic growth, a sustainable external position and, often, environmental sustainability.

Objectives are targets, not guarantees. Faster demand growth may reduce cyclical unemployment but increase inflation or imports; contraction may stabilise prices but weaken output. The feasible combination depends on spare capacity, expectations and the time horizon.

An economy with a large negative output gap may raise demand and improve employment with little initial inflation. Near capacity, the same stimulus is more likely to raise prices and imports.

A government can pursue all objectives at once only if the instruments and conditions allow it; “growth” alone is not a complete macroeconomic scorecard.