Question 1

Does 'full employment' mean that absolutely everyone in the labour force has a job?

Accepted Answer

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).

Question 2

Is a balance of payments surplus always a good thing for an economy?

Accepted Answer

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.

Question 3

Are the macroeconomic objectives always in conflict with each other?

Accepted Answer

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.

The macroeconomic aims of government

What you need to know

The macroeconomic aims of government