The main macroeconomic objectives of government policy

There are five main objectives which the government aims to achieve through manipulation of macroeconomic policy:

1) Economic Growth (i.e. an increase in the Real GDP of the economy)
There are several ways in which governments can attempt to stimulate growth:

• Decreasing tax rates to increase disposable income, thereby increasing MPC (depending on confidence) shifting AD to the right. 
• Decreasing taxes on firms - e.g. corporation tax. In the recent (2011) budget corporation tax was reduced by 2%.
• Increasing spending on supply side policies such as improvements in education and training, as a more skilled workforce is more productive.
• A decrease in unemployment benefits to encourage more people to work (only effective if there is spare capacity in the economy)
• Expanding the size of the labour supply by encouraging migration
• Put money into research and development for technical innovation to improve efficiency

2) Sustainable Growth

• defined as the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs. It is thought that rapidly growing countries like China and India may not be sustainable due to their huge demand for natural resources.

3) A Low, Stable Inflation Rate

• When inflation is high, goods become less competitive on the world market, so governments control inflation through macroeconomic policy. In the UK we have an independent Monetary Policy Committee who's main objective is the control of inflation through manipulation of interest rates.

4) Full Employment

• This objective is most likely to be achieved if there's economic growth. It is impossible to     achieve true full employment as there is always frictional unemployment, however we look at this as full employment and it's called the Naturally Occurring Rate of Unemployment. Keynesian economists believe that the aggregate demand and supply can be in long run equilibrium without the economy being at full employment.

 5) Balance of Payments Equilibrium on the Current Account

• Both the UK and the USA are running large deficits on the current account of their balance of payments. despite being financed by inflows into the financial account this is considered by some to be unsustainable in the long term. China has had a current account surplus for a long time and finances the USA's deficit by buying up US government bonds in order to maintain the low value of the Yuan against the Dollar (a surplus of US dollars on the market would depress its value). If China loses interest in supplying to the US (unlikely in the short term but possible in the long term), or for any reason stops buying US government bonds, the USA could find it very hard to finance their deficit.