Economic Objectives Of Macroeconomics

All government, regardless of their political persuasion, seek to achieve the macroeconomics objectives, this include the sustained rate of economic growth, full employment, price stability, and a positive trade balance with overseas partners (Myers, 2013).

1.1.1 Economic Growth

Economist will first analyse the growth rate of the economy by comparison and identify the reasons behind, in order to measure the growth performance of an economy (Grant & Vidler, 2000). Economic growth is define as the real GDP (gross domestic product) constantly increasing in a time period (McConnell, et al., 2014).

Government will try to achieve growth that can be sustained consistently, avoid recessions and excessive short-term growth. Growth can be divided into

Government and central bank faced conflicts trying to achieve any one of the macroeconomics objectives which may lead to the worsening of other macroeconomics factors. Following are several examples of the conflicts between macroeconomics objectives.

1.3.1 Full Employment & Price Stability

Both of full employment and price stability cannot be achieved simultaneously. To achieve full employment, expansionary policy will be implemented; central bank will reduce interest rate, government increase spending, reduce taxes, and increase the labour wage rate. Eventually, higher wages means higher purchasing power and increase in demand (Mankiw, 2012).

According to the law of demand and supply, increasing demand caused by external factors will lead to increase in general price and this will lead to inflation (Marshall, 2013).

In contrast, to achieve price stability, interest rate and taxes have to be increased. This will lead to decrease of consumption and investment, and consequently unemployment rate will increase.

1.3.2 Economics Growth & Price

An increase of investment and consumption will drive up the output of the economy and increase job opportunity, while it may seems like an excellent plan, however, inflation will eventually take place as the consumption overlaps the supply of goods and the general price will then increase.

In the meantime, to achieve a stable price level, government will need to increase interest rate and reduce spending that will reduce the consumption and investment, hence, slowing down the economics growth (Mankiw, 2012).

1.3.3 Economics Growth & Equilibrium of BoP

Economics growth will encourage the consumers to increase their consumption by reducing taxes, increasing government spending and other factors. The greater the economy growth, the greater the purchasing power, and this signified greater consumption on imported goods. The higher marginal propensity of import will lead to the deficit in the BoP.

Meanwhile, the best way to recover deficit in the BoP is by slowing down the economics growth which reduce the consumers’ purchasing power toward imported goods (Gillespie, 2013).

1.3.4 Economics Growth &