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Macroeconomics 1 – The domestic economy

Macroeconomics and

government policy goals

1.1 Macroeconomics

Macroeconomics focuses on the workings of the economy as a whole, including:

 the overall (‘aggregate’) demand for goods and services

 the output of goods and services (‘national output’ or ‘national product’)

 the supply of factors of production

 total incomes earned by providers of factors of production (‘national income’)

 money spent in purchasing the national product (‘national expenditure’)

 government policy.

1.2 Policy objectives:

Typically, governments will have four macroeconomic policy objectives:

 Economic growth – how can productive capacity be increased?

 Inflation – how can we ensure that general price levels do not increase?

 Unemployment – how can we ensure that everyone who wants a job has one?

 Balance of payments – how should we manage our financial relationships and
trade with other countries?

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