Macroeconomic Policy: What is the government going for? | srei
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Macroeconomic Policy: What is the government going for?

Consumers, producers and business cycles give the economy its form and direction. Keeping this in mind and looking at the economy as a whole, what goals are governments trying to achieve with the various fiscal, monetary and exchange rate policies? All these policies can be narrowed down to four essential macroeconomic goals.

Governments around the world have a set framework in mind depending on which of the following goals they find important in a given term.  Economic growth or a sustained rise in GDP is an important goal.  Governments want to make, produce and manufacture more so that the citizens of the country can have more. The next important objective that the government tries to achieve is low price inflation. Every fiscal year politicians set an inflation target keeping various factors in mind because inflation is the one thing that ordinary citizens and voters hate the most as it digs into their pockets on a daily basis. The third goal that governments around the world try to achieve is to make sure that there are enough jobs to go around and the level of unemployment is low.  A high unemployment rate has an impact on a national as well as on a personal scale. It produces deep distress, worse mental and physical health, higher mortality rates, hampers the educational progress of children, lowers a person’s future earnings and results in the wastage of an important resource for the country. The last major objective for the government is avoiding trade deficits. Countries are trading more than ever before and governments need to establish a sustained outflow so that they don’t end up buying more than they sell.  The trade deficit is also the main reason behind the sharp plunge in the currency of a nation as seen during periods of recession.

Apart from these four major goals there are certain policies pursued by the government to ensure the creation of a healthy economy. Redistribution of income is one such goal that the government tries to attain via taxes and benefits. This is mainly to ensure that there is no unfair distribution of income and the extent to which this redistribution takes place is dependent upon the priorities and interests of the political parties in power.  What is also being attempted is stimulating economic growth while protecting the environment and this should be done without affecting the ability of future generations to do the same.  Environmental policies should cause an adjustment of economic structures and they should not be seen as competing aims.

How the government goes about prioritizing and achieving these goals is dependent on the ideas and strategies that they have in place at the time. We also have to remember that the macroeconomic policies in one country are not isolated from the policies in another. The global financial economic system has a ripple effect and the policies of one country are not immune to effects of another.