Explain why governments choose low unemployment, low inflation, and sustainable economic growth as key policy objectives.

Q: Governments set targets for key macroeconomics objectives, but these are seldom met.

Explain why governments choose low unemployment, low inflation, and sustainable economic growth as key policy objectives.

Introduction

·      Explain the meaning of low unemployment, low inflation, and sustainable economic growth

1. Definitions 

2. Description

3. Examples

Why low unemployment as a key policy objective?

·      Explain the costs relating to high unemployment

1.  Fiscal costs - Worsening of budget position due to increased spending on unemployment/welfare benefits together with reduced tax revenue since there are a smaller pool of people to pay income text.

2.  Increases social and political instability – deterrent for investors

·      High Unemployment indicates inefficiency in the economy -producing within the PPC instead of on the PPC

Why low inflation as a key policy objective?

·      Explain the costs relating to high inflation

1.  Reduced exports competitiveness, while locals switch to cheaper imports: Worsening of BOP

2.  Reduced purchasing power of consumers -> Fall in material SOL

3.  Deter Investors: higher costs, uncertain margins

Why sustainable growth as a key policy objective?

·      Higher economic growth allows for greater material SOL as increased amount of goods and services produced (alternatively: higher incomes = greater purchasing power)

·      “Sustainable” suggests growth that limits the costs associated with it.

1.  High inflation

2.  Environmental degradation

3.  Widening inequality