Summary
Summary Macroeconomic Objectives
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Macroeconomic Objectives Economic Situation + Policy Balance of TradeExports (x) – Imports (m)
= balance of trade/current balance
Economic Growth (increase GDP) Negative Output Gap:
Positive = x>m = trade surplus
Fiscal Policy
Low unemployment Negative = x<m = trade deficit
Increase govt spending (infrastructure, health, education)
Favourable Balance of Payments Decrease taxes (tax relief, reduce tax rates
Monetary Policy
(includes imports and exports) Decrease Interest Rates (reduces cost of borrowing)
What affects the level of imports and exports?
Steady inflation (Between or at 2%- Capacity:
Quality, competitiveness (price + substitutes available)
Supply side
1%) Increase capital spending (infrastructure, research +
Price and value of the currency
Balanced budget (govt spending) development, technological advances)
Tariffs or other restrictions on trade
Availability of resources
Reduced inequality Fiscal Policy
Why might a current account deficit (M>X) be a problem?
Increase govt spending (infrastructure, health, education)
Lower impact on the environment Decrease taxes (tax relief, reduce tax rates)
Country is unable to sell as many exports as they need = uncompetitive
Imports need to be financed via money coming into economy another way (investment/borrowing)
Monetary Policy
Country dependent on supplies of goods/services from other countries
Decrease Interest Rates (reduces cost of borrowing
Any good points?
Positive Output Gap:
Depends on what is being imported – could be capital goods to fuel investments
Increase capacity supply-side policy
Could be a sign of strong growth as domestic firms expand to meet demand
Contractionary fiscal policy
Not a problem if other nations willing to lend/invest
Monetary policy
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