The Macroeconomic Objectives

The government has four main macroeconomic objectives. These aim to provide macro stability.
1. Economic growth: In the UK, the long run trend of economic growth is about 2.5%. Governments aim to have sustainable economic growth for the long run. In emerging markets and developing economies, governments might aim to increase economic development before economic growth, which will improve living standards, increase life expectancy and improve literacy rates.
2. Low unemployment: Governments aim to have as near to full employment as possible. They account for frictional unemployment by aiming for an unemployment rate of around 3%. The labour force should also be employed in productive work.
3. Low and stable rate of inflation: In the UK, the government inflation target is 2%, measured with CPI. This aims to provide price stability for firms and consumers, and will help them make decisions for the long run. If the inflation rate falls 1% outside this target, the Governor of the Bank of England has to write a letter to the Chancellor of the Exchequer to explain why this happened and what the Bank intends to do about it.
4. Balance of payments equilibrium on current account: Governments aim for the current account to be satisfactory, so there is not a large deficit. This is usually near to equilibrium. A balance of payments equilibrium on the current account means the country can sustainably finance the current account, which is important for long term growth.