What are the three domestic macroeconomic policy goals? Explain each in detail. 

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The three domestic policy goals of macroeconomic theory are full employment, stability in business cycles, and economic growth through increasing national production.

Macroeconomic domestic policy is concerned with:

  • how labor, and all types of national resources, are utilized for production.
  • the stability of economic business cycles.
  • increasing growth in national production.

Full employment, inversely related to the unemployment rate, has the objective that all persons 16 years and older who are able and willing to work should be working. Full employment of the labor resource is important because then all types of resources—labor, capital, land, and knowledge—are engaged in national production, supplying the goods and services people want or need and reducing scarcity.

Stability in business/production cycles means that there are limitations to disrupting variations in stable economic conditions. Disrupting economic expansions occur with inflation, and disrupting economic downturns occur with recession. Stability in economic conditions—neither inflation nor expansion—leads to stability in full employment, in price levels, and in national production. This circles back to full utilization of all types of national resources.

Economic growth is the result of increased production of goods and services. Increases in production are directly tied to stability in business cycles and to full employment. Economic growth accompanies labor, and other types of resources, being utilized for increasing national production and resulting in reduction of scarcity.

You'll notice the unifying objective seen in the three macroeconomic domestic policy goals is maximization of national production. This objective is accomplished through full employment, economic stability, and economic growth.


Macroeconomic Goals

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Domestic macroeconomic policy goals are often set as part of a larger political agenda and can vary depending on the particular political parties in power and the ways in which they respond to popular sentiment. Three of the most common domestic macroeconomic policy goals are listed below.

  1. Full employment (or low unemployment): Full or close to full employment is a common and popular macroeconomic goal. Countries and individuals flourish when all the people searching for work can find jobs. High unemployment leads to dissatisfaction and political unrest, and it negatively impacts morale and the well-being of citizens.
  2. Fair or equitable distribution of income: Although absolute economic equality is rarely a goal in liberal democracies or even in state capitalism such as that found in China or Russia, highly unequal wealth distribution has a negative impact on human relations and political stability. Most governments use taxation and some forms of redistribution as a way to reduce income inequality.
  3. Non-Inflationary Growth: Most countries want to increase GDP, which is something that ideally benefits all citizens. However, monetary policy is used to ensure that GDP increases do not lead to excessive inflation, which can erode purchasing power and have a negative impact on balance of trade.
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There are three goals that macroeconomic policymakers are generally trying to accomplish.  These three goals are: 1) economic growth, 2) low inflation, and 3) low unemployment.

Economic growth is the first of these goals. Economic growth can be defined as an increase in the country’s ability to produce goods and services.  Policymakers will want to help the country’s economy increase the amounts of resources that it has available for use.  Economic growth is good because it means that people in the country have more goods and services and, thereby, a higher standard of living.

A second goal is low unemployment.  This goal generally goes along with economic growth.  When the economy grows, unemployment is generally low.  Low unemployment is good partly because it means that more of the people who want work will have it and partly because it means that more people are making goods and services to increase the standard of living in the country.

Finally, macroeconomic policy tries to keep the rate of inflation low.  This can be difficult in times of economic growth and low unemployment because economic growth and low unemployment can bring about inflation.  Inflation is the increase in the average price level in the economy.  When the prices of goods and services in general rise, the economy experiences inflation.  Policymakers try to keep inflation low because high inflation harms people who are on fixed incomes and because high rates of inflation make it less likely that people will want to lend money.

Macroeconomic policymakers, then, attempt to achieve all three of these goals, even though the goals can be hard to achieve simultaneously.

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