Macroeconomic Objectives and Instruments

Macroeconomic Objectives

Objectives are the goals / targets of government policy

There are 4 main macroecomic objectives:

High employment – the government wants to achieve an increase employment and eventually a situation where all those able and available can find meaningful work

Stable low inflation – the Government’s inflation target is 2.0% for the consumer price index.
Sustainable growth – growth of real gross domestic product – sustainable at around 2.5%

Satisfactory balance of payments – internationally competitive (exports = imports)

Macroeconomic Instruments

Instruments are the means by which these objectives might be achieved

The main policy instruments available to meet macroeconomic objectives are:

Monetary policy –changes to interest rates, the supply of money and credit and also changes to the value of the exchange rate

Fiscal policy – changes to government taxation, government spending and borrowing

Supply-side policies designed to make markets work more efficiently

Other Macroecomic Objectives

Rising living standards and a fall in relative poverty – cutting child poverty and reducing pensioner poverty.
Sound government finances – including control over state borrowing and the total national debt

Introduction to Macroeconomics

Macroeconomics studies relationships and connections between one country and another for example, how a slowdown in the Chinese or the Brazilian economy can affect UK businesses. Or how a change in the exchange rate affects British firms exporting to countries around the world

The scope of macroeconomics includes looking at the success or failure of government policies – for example does the Coalition have effective and fair policies for cutting unemployment? Or has the government succeeded in creating the conditions for a durable and balanced recovery?

Macroeconomics involves looking at some big numbers! GDP is a good example, or figures for a country’s balance of payments. 
In macroeconomics we look at things ‘in the whole’ and, in doing so, we use these terms:
Households: receive income through wages and salaries from their jobs and from their investments and then buy the output of firms (this is known as consumer spending and is labelled as C)
Firms: Businesses hire land, labour and capital inputs when making products for which they pay wages and rent (income). Firms receive payment from consumers and profitable businesses may invest (I) a percentage of profits in new producer goods such as equipment and technology
Government: collect taxes (T) to fund spending on public services such as education, healthcare and defence. Government spending is given the label (G)
International sector: The UK buys imports from other countries, (M) and overseas businesses and consumers buy UK products – known as exports (X). International trade is important for the UK. Millions of jobs depend directly or indirectly on the UK remaining competitive in overseas market.