Seven Macroeconomic Objectives

1. Governments pursue several macroeconomic objectives at once, and each acts as a benchmark for judging policy.
2. Cambridge 9708 sets seven: low inflation, a sustainable balance of payments, low unemployment, economic growth, development, environmental sustainability and a fairer distribution of income and wealth.
3. No government can maximise all seven together, so choices between them are unavoidable.

The Core Four Objectives

1. Low and stable inflation
   1. Central banks typically target about 2%, measured by a consumer price index, to protect the internal value of money; for example, a central bank raising its policy rate cools demand-pull inflation.
2. Low unemployment
   1. Using the labour force as fully as possible so output is not wasted; for example, a fiscal stimulus of extra £ spending raises aggregate demand and creates jobs.
3. Steady economic growth
   1. Sustained rises in real output near the long-run trend rate of roughly 2%–3% a year, which lifts average incomes.
4. A sustainable balance of payments
   1. Avoiding large, persistent current-account deficits that must be financed by borrowing or by running down reserves.

The Wider Objectives

1. Economic development
   1. Raising living standards, health, education and wellbeing, which is broader than growth in output alone.
2. Environmental sustainability
   1. Meeting present needs without depleting resources or degrading the environment for future generations.
3. Redistribution of income and wealth
   1. Narrowing inequality, often measured by the Gini coefficient, so income and wealth are shared more fairly.

Why the Objectives Conflict

1. No government can maximise every objective at the same time.
2. Cutting unemployment by boosting aggregate demand may raise demand-pull inflation, a classic Phillips-curve trade-off.
3. Fast growth can widen the current-account deficit as import spending rises and can raise carbon emissions.
4. So policy balances the objectives, and the right mix depends on where the economy sits in the cycle.

Can a government realistically pursue all seven objectives at once?

1. In part yes, because some objectives reinforce one another: steady growth tends to cut unemployment and, by widening the tax base, can fund redistribution and development spending, so several aims can advance together.
2. But hard trade-offs bind: near full employment, faster growth risks breaching the inflation target (the Phillips-curve trade-off), can widen the current-account deficit as imports rise, and can raise carbon emissions, so progress on one front is often paid for on another.
3. On balance, how far the objectives can be reconciled depends on where the economy sits in the cycle and on the time horizon: with spare capacity many objectives move together, but near capacity governments must prioritise, and the ranking they choose depends on the country's stage of development.