The goals of macroeconomic policy, Macroeconomics

 

THE GOALS OF MACROECONOMIC POLICY 

Economic analysis attempts to explain why problems arise in the economy and how these problems can be dealt with. It is, therefore, indispensable for formulating and conducting economic policy. However, before studying macroeconomic theory and policy, one must know the macroeconomic goals of the economy. Because, without definite objectives there is no point in formulating a policy.Macroeconomic policy operates within a framework of goals and constraints. The most important goals of economic policy arei. Full employment - full utilization of human and non-human resourcesii. High living standardsiii. Price stabilityiv. Reduction of economic inequality and removal of povertyv. Rapid economic growthvi. External balance vs overall balance in economic relations with the rest of the world.As they stand, these objectives are rather vaguely worded. We need operational definitions to translate them into measurable targets. It must be mentioned that some of the objectives themselves and some of their operational counterparts are open to controversy. For instance, while almost everyone will agree that poverty removal is a desirable goal, many people might question the wisdom of trying to achieve near or total income equality. Again, economic growth as a target has come under attack in recent years from environmentalists, conservationists and others. Conventionally, living standards have been measured by a single index viz. 

per capita income but in recent years it has been cogently argued that this measure not only fails to capture several important dimensions of quality of life but that achievement of high per capita income may often conflict with some other desirable aspects of quality of life such as reducing pollution. As regards price stability, there is no agreement among economists as to the nature and magnitude of economic costs of inflation though most would agree that very high rates of inflation create serious distortions in the economy and can have adverse socio-political effects. Further, a variety of price indices can be employed to analyze price behavior and often, in the short run, they might move in different directions. The goal of full employment of labor might conflict with optimum choice of technology. Often it might also conflict with achievement of balance in international trade and with price stability. In summary we must remember that:Choice of goals for an economy is a controversial matter.Goals can be mutually incompatible.Universally acceptable operational definitions for all goals cannot be formulated.Subject to these caveats we will tentatively accept the following as policy objectives:i. High and rising per capita incomes.ii. Avoiding excessively high inflation.iii. Efficient use of human and non-human resources with minimum possible unemployment of labor.iv. Poverty removal and removal of extreme inequalities in income distribution.v. Avoidance of persistent imbalances in foreign trade and excessive resort to foreign capital.Notice that precision is still lacking. After all, we have not defined what is 'excessively high inflation' or 'extreme inequalities'. We will see later that this is inevitable. Also notice that we have not included 'rapid industrialization' or 'technological advancement' among the goals. In our view they are not primary goals; they could be prerequisites for achieving the primary goals and hence can become subsidiary targets.During the 1950s and 1960s, economists and policy makers were optimistic about the use of economic policy as an instrument to achieve these socio-economic objectives. But the events of 1970s (namely, supply shocks) shattered this optimism, and today much disagreement exists as to which policies will work best in achieving them. For this reason, we shall be concerned not only with the Keynesian ideas, but with the monetarist, rational expectations and supply-side economics as well. 

Posted Date: 9/11/2012 4:23:14 AM | Location : United States







Related Discussions:- The goals of macroeconomic policy, Assignment Help, Ask Question on The goals of macroeconomic policy, Get Answer, Expert's Help, The goals of macroeconomic policy Discussions

Write discussion on The goals of macroeconomic policy
Your posts are moderated
Related Questions
Reaganomics Supply-side economics or New Classical Economics has gained distinct prominence in the early 1980s with the election in the U.S.A of a conservative government unde

what does international trade fails to its claims ?

George has been selling 5,000 T-shirts per month for $8.50. When he increased the price to $9.50 he sold only 4,000 T-shirts. What is the demand elasticity? If his marginal cost is


What are long run and short run? Long run: It is the time period wherein all inputs cannot be fixed. Short run: It is the time period within which at least one in

1. An unemployed individual decides to spend the day fishing. The opportunity cost of fishing is equal to A) The cost of bait and any other monetary expenses. B) Zero, becaus

The sales counter next to the soft toy display in Shambles receives a customer every 2-4 minutes. Most of these customers (80%) are buying toys and are dealt with by the cashier i

using a classical labour market , illustrate the effects of a real wage existing in the market that is lower than the equilibrium real wage. what will eventually happen in this lab

A significant argument for the augmentation has to do with concept of money illusion. Money illusion means that you care about nominal rather than real amounts. Imagine that your s

Shambles, a large toy retailer, are looking at bringing out a new range of soft toys. The range under consideration is "Mythical Beasts."  The "Mythical Beasts" range will cost £50