Macroeconomics is the study of the aggregate economy rather than individual agents in the economy ( as microeconomics does).
It examines economy-wide phenomena such as changes in the price level, changes in the unemployment rate, and changes in National income.
Every government has four main objectives in mind when setting macroeconomic policies which are:
1. Limit unemployment (Reduce unemployment rate to the barest minimum)
2. Keep price stable (Reduce inflation to the lowest possible)
3. Sustained economic growth.
4. Balance of payment equilibrium.
Let's dive deeper into each macroeconomic goals
Keep price stable
Price stability is one policy that both economists and the general public are interested in because a rising price level will bring uncertainty to the economy.The government tries to keep prices stable or maintain a low inflation rate (creeping inflation).
Hyperinflation is certainly bad for the economy.
When there is hyperinflation, people hoard goods, their cash savings become worthless, and people will resolve to trade by barter as money will become useless.
Of course, no government wants this to happen.
Therefore, the government uses both monetary and fiscal policy to keep prices stable.
Limit unemployment
Unemployment is a situation where people who are actively looking for jobs can not find jobs.The government also seeks to limit unemployment.
This is usually taken to mean full employment.
An economy is in full employment when the unemployment rate is equal to its natural rate of unemployment.
Achieving full unemployment is probably the most important macroeconomic goal.
This is because a reduced labor force would also reduce national output and cause a decline in economic activity.
Moreover, a reduced labor force also breeds poverty.
To attain full employment, American economist John Maynard Keynes advocated for the use of effective aggregate demand.
Economic growth and development
Economic growth is defined as the process by which the real GDP of an economy increases over time.It is measured by an increase in the number of final goods and services produced in a country in a successive period.
To achieve economic growth, the government tries to increase productive capacity, which in turn increases the production of goods and services.
They also tried to ensure that economic growth is sustainable so that future generations will benefit from higher standards of living.
In addition to pursuing sustainable economic growth, the government also strives for economic development, which is an increase in the welfare and quality of life of the people of an economy.
The correct balance of payment problem
Another macroeconomic goal of the government has been to correct the balance of payment problem.This is usually understood to mean maintaining equilibrium in the balance of payment.
Achieving this goal has been necessitated by the sea change experience in world trade.
For most governments, the goal is to achieve balance in the current account of the balance payment account.
In the short run, a government may encourage a current account deficit if it is caused by the importation of raw materials and capital goods.
In a bid to ensure a balance of payment equilibrium, the government may also encourage a surplus in the financial account by attracting foreign direct investment.
This investment will increase aggregate demand while also reducing unemployment.
The attainment of a balance of payment equilibrium is, therefore, an important objective of macroeconomic policies.
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The bottom line
To achieve these macroeconomic goals, the government may use a range of policy measures depending on the economic situation of a country.
The government may decide to prioritize one objective over another, depending on the economic situation of the country.
For instance, if the economy is experiencing hyperinflation (an inflation rate of over 50 percent), the government concentrates on keeping the rice stable.
Creeping inflation is an inflation of 3% or less. It is generally considered to be good for the economy.
Oppositely, every government tries to avoid hyperinflation, which is defined as an inflation rate of 50% or higher.
Similarly, it may welcome a surplus in the current account to boost aggregate demand.