Summary Economics unit 3

Economics Unit 3: Macroeconomic Objectives and Policies



1. Macroeconomic Objectives

Governments aim to achieve the following:

- Economic Growth: Increase in GDP and living standards.

- Low Unemployment: Close to full employment, reduces poverty.

- Price Stability: Control inflation around 2%.

- Balance of Payments Stability: Maintain sustainable trade balance.

- Redistribution of Income: Use taxes and welfare to reduce inequality.

- Environmental Sustainability: Growth without harming future resources.



2. Conflicts Between Objectives

- Growth vs. Inflation: Rapid growth may raise prices.

- Unemployment vs. Inflation: Inverse relationship (Phillips Curve).

- Growth vs. Environment: Growth may increase pollution.

- Redistribution vs. Efficiency: High taxes may reduce incentives.



3. Macroeconomic Policies

A. Fiscal Policy

- Government spending and taxation.

- Expansionary: More spending or lower taxes to stimulate growth.

- Contractionary: Less spending or higher taxes to control inflation.



B. Monetary Policy

- Central bank controls interest rates and money supply.

- Expansionary: Lower interest rates to boost spending.

- Contractionary: Raise interest rates to reduce inflation.