Key macroeconomic objectives
Governments pursue a number of broad aims to promote economic prosperity and social welfare. These aims often interact and may sometimes conflict.
| Objective | Indicator | Rationale |
|---|---|---|
| Sustainable economic growth | Annual growth rate of real GDP | Growth raises national income and living standards and provides resources for public services. |
| Full employment / low unemployment | Unemployment rate | Employment increases output and reduces welfare costs; persistent unemployment wastes resources and causes social problems. |
| Price stability | Inflation rate (e.g. Consumer Price Index) | Low and stable inflation preserves purchasing power, reduces uncertainty and encourages investment. |
| Balance of payments equilibrium | Current account balance as a % of GDP | Persistent deficits may be unsustainable; a healthy external position supports currency stability. |
| Equitable distribution of income | Gini coefficient, poverty rate | Reducing inequality promotes social cohesion and ensures that growth benefits all citizens. |
| Environmental sustainability | Carbon emissions, air quality indices | Protecting the environment ensures that economic development does not compromise future generations’ ability to meet their needs. |
Conflicts between objectives
Pursuing one objective may make it harder to achieve another. For example, policies that stimulate rapid growth and employment may lead to higher inflation. Measures to cut inflation (e.g. raising interest rates) can increase unemployment. Achieving an equitable income distribution through higher taxes may reduce incentives for work and investment. Policymakers must balance these trade‑offs.
Examples and applications
After the 2008 global financial crisis, many governments adopted policies to achieve full employment by cutting interest rates and increasing spending. This helped reduce unemployment but led to concerns about rising public debt and future inflation. Conversely, policies to curb inflation, such as raising interest rates, can slow economic growth and increase unemployment.
Norway illustrates how a country can pursue both economic growth and environmental sustainability. It invests its oil revenues in a sovereign wealth fund, uses hydropower for most electricity, and sets ambitious emissions targets. Meanwhile, some fast‑growing economies have experienced severe pollution and inequality, highlighting the need to balance multiple macroeconomic goals.
