9708 · 10.1
Government macroeconomic policy objectives — FAQ
Frequently asked questions for 9708 Government macroeconomic policy objectives. Direct answers first, then deeper explanation — then practise with marking.
Does 'full employment' mean that absolutely everyone in the labour force has a job?
No, this is a common misconception. Full employment does not mean zero unemployment. It refers to a situation where cyclical (demand-deficient) unemployment is zero. The economy is considered to be at full employment when the only unemployment remaining is frictional, structural, and seasonal. This level is known as the Natural Rate of Unemployment (NRU).
Is a balance of payments surplus always a good thing for an economy?
Not necessarily. While a surplus is often seen as preferable to a deficit, a large and persistent current account surplus can be problematic. It may indicate weak domestic demand and over-reliance on exports, making the economy vulnerable to global downturns. It can also lead to protectionist reactions from trading partners who are running corresponding deficits. The objective is 'balance' or 'stability', not necessarily a large surplus.
Are the macroeconomic objectives always in conflict with each other?
While trade-offs are common, the objectives are not always in conflict. There can be compatibility, especially through the use of supply-side policies. For instance, policies that improve labour market flexibility can reduce the natural rate of unemployment while also increasing the economy's productive potential (sustainable growth). Similarly, investment in green technology can promote growth while also meeting environmental objectives. The key is the type of policy used.