USING MACROECONOMIC AND STRUCTURAL POLICIES TO ATTAIN MACROECONOMIC OBJECTIVES

As mentioned in Chapter 1 of this book, most governments aim to achieve several broad macroeconomic objectives. These include operating near potential output and attaining an acceptable level of economic growth; achieving relative price stability (low inflation); and maintaining a sustainable external position, meaning a sound balance of payments and a modest level of external debt. We can group these objectives under two broad headings: macroeconomic stability and growth. Stability implies operating close to potential output, with low inflation and a sustainable external position. To be compatible with stability, growth must allow the economy to expand at a rate consistent with potential output, without threatening excessive inflation or an unsustainable balance of payments as productive capacity expands…