Macroeconomic objectives
- Governments aim for: economic growth; low unemployment; low and stable inflation (the UK target is 2%, measured by CPI); balance of payments stability; and a fair distribution of income.
- Protecting the environment is also an increasingly important aim.
Conflicts between objectives
- Objectives can conflict. Fast growth can raise inflation; policies to cut inflation (like higher interest rates) can raise unemployment.
- Growth can also increase imports, worsening the balance of payments, and can harm the environment.
Distribution of income and wealth
- Income is money received over a period (wages, interest, benefits). Wealth is the value of assets owned (houses, savings, shares).
- Inequality can be reduced through progressive taxes (where richer people pay a higher percentage, like income tax), benefits and the National Minimum Wage.
- The Lorenz curve and Gini coefficient measure inequality. A Gini coefficient of 0 means perfect equality, and 1 means one person has everything.
Key terms
- Macroeconomic objectives
- A government's aims for the whole economy.
- Inflation target
- The UK government's target of 2% CPI inflation.
- Progressive tax
- A tax where higher earners pay a higher percentage.
- Regressive tax
- A tax that takes a higher percentage from lower earners.
- Income
- Money received over a period of time.
- Wealth
- The value of assets owned.
- Gini coefficient
- A measure of inequality from 0 to 1.