Page 106 - F1 - AB Integrated Workbook STUDENT 2018-19

Chapter 7

Macroeconomics

7.1 Introduction

While some economists advocate a free market (one without government
interference), in reality most governments intervene through various macroeconomic
policies in an attempt to improve the performance of the economy.

7.2 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?

7.3 Economic growth

Why we want growth Counter argument

 More goods produced for people to  Need growth > inflation, i.e. real
buy. growth.

 People earn more so can afford  Need growth per head.
these extra goods.
 Market failure issues – e.g. growth
 Lower unemployment. may be in demerit goods, may
produce more pollution, may be
 The above should result in an due to exploiting the poor, etc…
improved standard of living for
citizens.  Measurement of growth is difficult
given ‘black markets’ and non-
marketed goods.

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