9708 · 5.1
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 has a job?
No, this is a common misconception. Full employment refers to a situation where cyclical (demand-deficient) unemployment is zero. There will still be a 'natural rate' of unemployment, consisting of frictional (people between jobs) and structural (mismatch of skills) unemployment. The goal is to have an unemployment rate equal to this natural rate, not 0%.
Is the government's inflation target always 0%?
No, the objective is 'price stability', which means a low and stable rate of inflation, not zero. Most developed economies target a small positive rate, like 2%. This is because a 0% target risks tipping into deflation (falling prices), which can be very damaging as consumers delay spending and the real value of debt increases. A small amount of inflation also allows for real wage adjustments more easily.
Is economic growth always good for a country?
While economic growth is a primary objective with many benefits like higher incomes and employment, it is not without potential costs. Rapid, unsustainable growth can lead to negative externalities like pollution and resource depletion. It can also widen income inequality if the benefits are not shared widely. Therefore, governments increasingly aim for 'sustainable' and 'inclusive' growth, which considers environmental and social impacts.