Other Macroeconomic Objectives

There are more than just 4...

At this stage, we have learned about the 4 primary macroeconomic objectives: sustainable economic growth, stable inflation, low unemployment, sustainable balance of payments.

However, there are some other objectives you should really know about. This will give you the knowledge you need to consider the whole picture in your analysis and evaluation questions.

4 more objectives:

1. Equal Distribution of Income

2. Preservation of the Environment

3. Long-term Economic Stability

4. Improvements in Productivity

We will now go through each of these objectives one by one.

Equal Distribution of Income

Income is rarely ever equally distributed in any economy. There are many reasons for why people earn different incomes, but some examples would be:

1. People have different skill sets (some skills take years of training to acquire)

2. People live in different locations (some locations have more work e.g. capital city)

3. Different markets (some industries are typically more rewarding like the oil and banking industries - this is because they are more profitable industries

4. Different job roles (a manger has more responsibility than a typical worker, therefore a manager should be paid more as more is needed from his/her job)

Income should be fairly distributed because:

1. Reduces the level of poverty: (overall, there will be a better standard of living for our society has a whole)

2. Higher economic growth: There is typically more spending in the economy, therefore the economy benefits. The highest earners often don't know what to spend their money on, therefore they end up saving much of their incomes. This can slow down economic growth, and increase unemployment

Income redistribution carries some disadvantages:

1. High earnings is an incentive to work hard.

It's the foundation of any capitalist economy: work hard and be rewarded for your hard work. Too much redistribution can damage the economy because people don't have the same incentive to work hard and this can slow down development. Highly skilled workers may also move to other countries where their skills are being rewarded more highly.

2. The highest earners mean luxury goods exist

If we did not have high earners, we would not have luxury goods. Luxury goods do carry certain benefits which raise the level of welfare in society. Production of luxury goods also creates jobs for others too.

3. Wealthy people create jobs

Do not get wealth confused with income. Wealth is the sum of all your assets (what you own) minus your liabilities (what you owe).

Why do wealthy people create jobs? For example, people purchasing assets like housing - this keeps certain job positions filled like estate agents and tradesmen like builders and bathroom fitters.

What can the government do to tackle inequality?

The simplest ways are as follows:

1. Progressive tax system: where the highest earners get taxed more

Welfare payments: using tax revenue to provide the lowest earners additional income to raise their standard of living

Preservation of the Environment

1. Economic activity damages and pollutes the environment

2. Economic activity depletes finite resources

Therefore, it is important to preserve and protect the environment.

How does the government achieve this?

The government must identify damage caused by firms/households e.g. CO2 emissions

Then, they must calculate the cost of this damage

Finally, financial penalties (a fine) and bans can be implemented to reduce damage to the environment. Any penalties should be large enough to ensure firms/households react to the incentive to reduce the damage they cause.

A recent example might include the government's decision to place a minimum 5p charge on plastic bags.

To avoid too over-depletion of our finite resources, governments can:

1. Promote more resource efficient technologies (e.g. cars which are more fuel efficient, using less fuel with the same mileage)

Non-renewable resources will still deplete, but at a slower rate

2. Promote, encourage and invest into new technologies which use renewable resources

Example would include electric cars which are powered by electricity, produced from renewable sources like wind turbines or solar energy.

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