Summary Macroeconomic Objectives

Macroeconomic Objectives Economic Situation + Policy Balance of Trade
Exports (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