Economic objectives are what the government wants to achieve and include:
- Stable prices (low inflation)
- Steady and sustained economic growth
- Low unemployment or full employment
- A balanced balance of payments
Factors that Influence the Goverments ability to achieve Objectives
- Availability of factors of production
- Productivity of factors of production
- Technology
- Amount of trade between UK and other countries
- Macroeconomic policy
- Laws and legal system
- Geography
Conflicts between Objectives
- Healthy Growth and low inflation – when economies grow too quickly demand exceeds supply leading to a rise in prices
- To keep inflation low the government uses tools like high interest rates which can deter economic growth
- There is a trend rate of growth in the economy of 2 ½ - 3 % which is believed not to spark inflation
Healthy Growth & Balance of Payments Equilibrium
- When the economy grows quickly consumption is high and British consumers have a tendency to spend their money on imports
- This leads to a larger balance of payments deficit
Low Unemployment & Low Inflation
Phillips curve shows an inverse relationship between unemployment and inflation
When the government decreases interest rates or increases public expenditure to decrease unemployment this will push wages higher therefore increasing prices and causing inflation
However measures to control inflation e.g. high interest rates and decreases public spending increase unemployment rates
Other Conflicts
Healthy growth and the environment – the more rapid the rate of growth the greater the level of production and the increase in levels of pollution etc
Healthy growth and equality – when an economy grows it is often the rich that benefit and the poor that suffer creating more inequality in the country
