Question

A balanced federal budget and a balance of trade are secondary goals of macroeconomics, while growth in the standard of living (for example) is a primary goal. Why do you think that is so?

Short answer

The standard of living is a primary goal of macroeconomics as it directly affects people's well-being through access to goods, services, healthcare, education, and leisure opportunities. A balanced federal budget and balance of trade are secondary goals, as they indirectly contribute to the primary goal but are not crucial to maintaining well-being. Focusing on a balanced budget may require cutting government spending or increasing taxes, which can negatively impact the standard of living. Similarly, focusing solely on balance of trade might neglect other aspects that directly influence the standard of living.

Step-by-step solution

Understand the terms

Before we begin, let's define these terms: 1. Balanced federal budget: A situation where the government's total revenues equal its total expenditures. 2. Balance of trade: The difference between a country's imports and its exports. 3. Standard of living: The level of wealth, comfort, material goods, and necessities available to a particular socioeconomic class, typically measured by factors like GDP per capita, income distribution, and access to social services. Now we will differentiate between primary and secondary macroeconomic goals and explain why standard of living is a primary goal while a balanced federal budget and balance of trade are secondary goals.

Primary and Secondary Goals

In macroeconomics, primary goals refer to the main objectives of a policy, while secondary goals are additional aims that contribute to achieving the primary goals. Primary goals are typically more important and have a direct impact on people's lives, whereas secondary goals might be desirable but not essential for overall economic well-being.

Standard of Living as a Primary Goal

The standard of living is a primary goal in macroeconomics because it directly affects the well-being of the population. A higher standard of living implies better access to goods and services, healthcare, education, and leisure opportunities, all of which contribute to improved quality of life. Therefore, most policies in macroeconomics aim to improve the standard of living in one way or another.

Balanced Federal Budget as a Secondary Goal

A balanced federal budget is a secondary goal in macroeconomics because, while useful, it does not directly impact the standard of living, and can sometimes even hinder economic growth. Balancing the budget might require cutting government spending on essential services or increasing taxes, which can negatively affect the standard of living. Moreover, running budget deficits may be necessary during economic downturns to stimulate growth and protect the standard of living.

Balance of Trade as a Secondary Goal

Balance of trade is also considered a secondary goal in macroeconomics because, although it can have a positive impact on the economy, it is not essential for the well-being of the population. A positive balance of trade might lead to increased exports and more jobs, while a negative balance of trade could result in more imported goods and lower prices. However, focusing solely on achieving a balance of trade might neglect other aspects of the economy that are more directly related to the standard of living. In conclusion, the standard of living is the primary goal of macroeconomics because it directly influences people's quality of life. A balanced federal budget and balance of trade are secondary goals because they are helpful in realizing the primary goal but not crucial for maintaining the well-being of the population.