Six macroeconomic objectives and their measures
| English | Español |
|---|---|
| government budget balance | government budget balance |
| macroeconomic objective | macroeconomic objective |
A decision you can investigate
- A government can have a budget deficit while the economy has a current-account surplus. Falling inflation can still mean rising prices.
- Specify which objective a statistic measures before judging policy success.
Build the explanation
- Economic growth raises real output; sustained potential and real-per-head growth matter for long-run living standards. Low, stable inflation reduces uncertainty about purchasing power and contracts; this differs from zero prices or a permanently falling price level. Low unemployment concerns people available for and seeking work, not every person outside employment. Structural matching and cyclical demand both matter.
- Current-account equilibrium concerns goods/services and primary/secondary income flows with other economies. A balanced government budget concerns public revenue and expenditure over a period, not national imports and exports. Greater income equality concerns distribution: a higher mean alone does not establish smaller income gaps. Objectives need explicit periods, price adjustment, definitions and policy priorities; progress on one does not prove progress on all six.
Work through the evidence
- In a fictional annual account, government revenue 200 and total expenditure 220 give a budget balance 200−220=−20, a deficit. Separately, the country has net goods/services 12, primary income −4 and secondary income 2: current-account balance=12−4+2=10, a surplus. The two balances have opposite signs because they measure different flows.
- Real output rises 500→515, growth 3%; population rises 100→105, so output per head falls from 5 to 4.9048, about 1.90%. Inflation falls 6%→3%: prices still rise in the second year, more slowly. In a simplified two-group income distribution 20/80→30/90, both gain and the upper/lower ratio falls 4→3; the absolute gap remains 60. State the inequality measure rather than treating relative and absolute gaps as identical.
What is the budget balance?
Revenue 200 less expenditure 220 gives −20.
Test the limits
- This budget uses total expenditure including transfers and interest, whereas G in the aggregate-demand identity means public purchases; do not swap the accounting definitions. A deficit is a flow, public debt a stock accumulated through borrowing and other adjustments. A one-year balanced budget may conflict with stabilization or long-term investment.
- Current-account balance need not be exactly zero every year to be sustainable; financing, composition and duration matter. Low unemployment is not necessarily zero unemployment because job search and changing skills continue. The growth and distribution cases demonstrate measurement distinctions, not official policy targets or a universal optimum. Judge objectives together using welfare and context.
With inflation falling from 6% to 3%, what happens to prices in the second year?
Positive inflation means the price level still rises.
A higher mean income proves greater income equality.
The distribution and chosen inequality measure must also be examined.
Apply and explain your answer
- Why do the budget deficit −20 and current-account surplus 10 not contradict each other?
- The first compares government revenue and spending; the second measures the economy’s current international transactions. Different sectors and definitions permit opposite signs.
Which statistic measures the current account here?
Net trade and primary/secondary income determine the stated current account.
Use the terms precisely
- government budget balance 政府预算余额: Government revenue less total government expenditure over a period.
- macroeconomic objective 宏观经济目标: An economy-wide outcome that policy seeks to improve or maintain.
Match the terms to their meanings.
Use each term for its stated economic relationship.
In a fictional annual account, government revenue 200 and total expenditure 220 give a budget balance 200−220=−20, a deficit. Separately, the country has net goods/services 12, primary income −4 and secondary income 2: current-account balance=12−4+2=10, a surplus. The two balances have opposite signs because they measure different flows. Real output rises 500→515, growth 3%; population rises 100→105, so output per head falls from 5 to 4.9048, about 1.90%. Inflation falls 6%→3%: prices still rise in the second year, more slowly. In a simplified two-group income distribution 20/80→30/90, both gain and the upper/lower ratio falls 4→3; the absolute gap remains 60. State the inequality measure rather than treating relative and absolute gaps as identical.
This budget uses total expenditure including transfers and interest, whereas G in the aggregate-demand identity means public purchases; do not swap the accounting definitions. A deficit is a flow, public debt a stock accumulated through borrowing and other adjustments. A one-year balanced budget may conflict with stabilization or long-term investment. Current-account balance need not be exactly zero every year to be sustainable; financing, composition and duration matter. Low unemployment is not necessarily zero unemployment because job search and changing skills continue. The growth and distribution cases demonstrate measurement distinctions, not official policy targets or a universal optimum. Judge objectives together using welfare and context.
Economic growth raises real output; sustained potential and real-per-head growth matter for long-run living standards. Low, stable inflation reduces uncertainty about purchasing power and contracts; this differs from zero prices or a permanently falling price level. Low unemployment concerns people available for and seeking work, not every person outside employment. Structural matching and cyclical demand both matter.