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4.1. Government macroeconomic intervention

Syllabus
0455–2027–2028
Topic
4.1
Level
—

Learning objectives

4.1.1Macroeconomic aims• the macroeconomic aims of government:• economic growth• full employment/low unemployment• stable prices/low inflation• balance of payments stability• redistribution of income• environmental sustainability• reasons behind the choice of aims and the criteria that governments may set for meeting each aim• possible conflicts between macroeconomic aims:• full employment and stable prices• economic growth and environmental sustainability• full employment and balance of payments stability

Set and reconcile macroeconomic aims

Macroeconomic aims describe outcomes for the whole economy. Governments choose priorities by comparing current performance with measurable criteria, judging urgency and considering how success in one aim may support or obstruct another.

Aim Desired outcome Possible criterion Why it matters
economic growth sustained rise in real output target real GDP growth rate raises potential incomes, employment and living standards
full employment / low unemployment available labour used productively target unemployment rate raises output and tax revenue while reducing poverty and benefit spending
stable prices / low inflation slow, predictable rise in the price level inflation target or range protects purchasing power, planning and international competitiveness
balance of payments stability external payments remain sustainable target for the current-account balance reduces vulnerability from persistent external imbalance
redistribution of income lower poverty and a more even income distribution poverty or inequality target improves access to necessities and living standards
environmental sustainability current output does not undermine future resources and environmental quality emissions, pollution or resource-use target protects health, ecosystems and future living standards

The chosen aim depends on the starting problem, its severity, public priorities, available resources and the time needed for change. A government may set several criteria, but limited resources and conflicting mechanisms mean it must decide which shortfall is most urgent.

Named conflict How the conflict can arise Why it is conditional
full employment vs stable prices higher employment raises incomes and demand; near capacity, wages and other costs may rise, causing inflation spare capacity or higher productivity can allow employment and output to rise with less price pressure
economic growth vs environmental sustainability more production may use finite resources and create pollution or emissions cleaner energy, technology and resource efficiency can make growth less damaging
full employment vs balance of payments stability higher employment and income may raise imports, worsening the current account export-led employment or lower import dependence can improve both aims

Do not confuse an aim, a criterion and a policy. ‘Low inflation’ is an aim, ‘inflation within a target range’ is a success criterion, and a change in interest rates or taxation is a policy used to pursue an aim.