• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Explain what the main macroeconomic policy objectives are and why are there problems when trying to achieve them together? What is full employment? It is desirable to achieve it?

Extracts from this document...

Introduction

ESSAY 3 Explain what the main macroeconomic policy objectives are and why are there problems when trying to achieve them together? What is full employment? It is desirable to achieve it? Governments management of the economy is always a key political issue. Each government must set targets and objectives when it assumes power in order to improve welfare of the country as a whole. The four main macroeconomic policies to reach this target are the country economic sustainable growth, to reach equilibrium in international trade, to stable low inflation and to achieve a less unemployment index Economic growth is an increase in the real level of national output, measured by the annual percentage change in real GDP (gross domestic product). It is also defined as a long-term expansion of the productive potential of the economy. Growth stimulates higher employment as there is more investment in the country; it has a positive impact on company profits and business confidence. So a higher demand for imports are produced, increasing international trade. It has a positive effect in governments finances because of the high level of tax revenues they receive. This is why a greater spending on merits goods can be made. ...read more.

Middle

Inflation is a possible cause of higher unemployment, particularly if one country experiences a much higher rate of inflation than another, leading to a loss of international competitiveness and a subsequent worsening of their international trade performance. By stabilizing inflation employment and economic growth continues increases, but international trade is low because inflation incentives imports due to a price increase hence better profits for the importers. International trade is important because countries need to export goods and services to finance imports of products they cannot supply in the country. Exports represent an injection of demand into the circular flow of income. There is a potential improvement in economic welfare if countries specialize in the products in which they have comparative advantages and then trade with other nations. International competition stimulates higher allocative and productive efficiency. Furthermore imports can help to satisfy excess demand for consumers. A trade deficit during a boom helps to reduce demand- pull inflation. In order to reduce inflation because it increases as prices arise due to the trade efficiency, governments introduces import controls, this are barriers to the free movement of good and services between countries. Tariffs or tax on imports are used to restrict imports and raise revenue for the government. ...read more.

Conclusion

Using all the labour resources means using even the low skilled people. Another obstacle to reaching full-employment is the risk that wage and price inflation will pick up as more people find work and total spending in the economy causes businesses to raise prices. When unemployment is falling there is pressure on firms to bid up wages both to attract and retain staff. Labour shortages that cause acceleration in wage inflation might persuade banks to increase interest rates. This would slow down the economy and the rate of new job creation might suffer as a result. Although falling unemployment will create inflationary pressure in the economy, it has been proved that unemployment and inflation have continued to fall together. It can be explained as that labour market becomes flexible. It is better able to match the unemployed with the new jobs, and the economy has been able to attract sufficient new workers into the labour force to meet a rising demand for labour. Inflation can be kept low through the impact of new technology and more intense competition in many markets. In conclusion the four main macroeconomic objectives are difficult to achieve together because the improvement of one involves scarifying other one. Reaching full-employment is not desirable as it causes damages in the total economy, however a 2% of unemployment is considered full-employment in first world countries, and that is the target. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Macroeconomics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Macroeconomics essays

  1. Marked by a teacher

    To what extent is economic growth desirable

    4 star(s)

    This raises pressure on monetary policy and interest rates to rise in order to counter-act inflation, the risk and severity of inflation greatly depends on central banks and governments, if they do not act then cost-push inflation may occur hitting those on fixed and low incomes the hardest and increasing income disparity Finally, growth furthers social injustice within an economy.

  2. Governments set economic objectives - Discuss the relative importance of each of these objectives ...

    In the 1970s and 1980s, many semi-skilled and unskilled male workers were caught in the poverty trap: taking on a low paid job would lead them to lose as much or even more in state benefits than they would gain in ages after tax.

  1. What are the government objectives? Explain why each is important and how the government ...

    (The total demand for all goods and services from all sources in the economy) These policies will encourage firms to expand output and consequently take on more labour. However, care must be taken not to overdo expansionary policies, lest growth leads to pressure on resources and accelerating inflation, which would only worsen the problem and severity of unemployment.

  2. Conflicts between macroeconomic objectives.

    Of course, the �import controls� option is difficult to use these days with the World Trade Organisation. Finally, the government could deflate the economy by increasing taxes or reducing government spending. The subsequent reduction in consumer spending will reduce the number of imports bought, but reduced consumption leads to a

  1. Comparing the effects of immigration on GDP in Malaysia, Japan and South Africa.

    (Domestic Crime, Foreign Workers, Regional Ties, 23 Feb 2007). Although it is s a known fact that most of the crimes in this country are committed by Malaysians [80% in 2007 and 97% in 2009 according to reports. However, we cannot deny the crimes that are committed by foreigners.

  2. Budget 2004-05 and Economic Analysis of Pakistan

    TOTAL: 645234 714019 700770 Under the New Chart of Accounts, the bulk of expenditure has been booked under General Public Service. The expenditure against this head has been budgeted at Rs 423836 million as compared with Rs 448430 million in the revised estimates and Rs 377926 million in the budget estimates of 2003-2004 .

  1. This paper will begin by detailing the creation of money and then end with ...

    Lowering the Discount Rate is a factor of Easy Money Policy (or Expansionary Monetary Policy). The purpose of this policy is to increase aggregate demand, output, and employment ? all to combat economic recession and rising rates of unemployment. Raising the Discount Rate has the opposite effect and is a

  2. Various Macro-Economic Questions and answers

    Are there any problems with the use of GDP as a measure of growth? GDP only measures output; it doesn?t measure any investment made by firms or other counties. Plus it only measures the output by British firms, and as most of the companies in our economy are foreign it doesn?t say much.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work