Question

What are the three main goals of macroeconomics?

Short answer

The three main goals of macroeconomics are stable prices, full employment, and economic growth. Stable prices allow households and businesses to make long-term plans with confidence, while full employment ensures efficient use of labor resources and maximum output. Economic growth leads to improved living standards, debt reduction, and addressing social issues like poverty and inequality.

Step-by-step solution

Identify Goal 1

The first main goal of macroeconomics is stable prices. Stable prices mean that the overall level of prices in an economy remain relatively unchanged or increase at a slow, predictable rate over time. Price stability is essential because it allows households and businesses to make long-term plans and investments with confidence, knowing that sudden changes in prices won't disrupt their plans. When prices are stable, people maintain confidence in the currency as a measure of value.

Identify Goal 2

The second main goal of macroeconomics is full employment. Full employment doesn't mean that there is zero unemployment, but it does mean that the only unemployment that exists is natural unemployment — meaning people are in between jobs or choosing not to work for various personal reasons. This goal is important because when an economy is at full employment, all the available labor resources are being used efficiently, leading to maximum output in the economy.

Identify Goal 3

The third main goal of macroeconomics is economic growth. Economic growth is the increase in an economy’s ability to produce goods and services. It is usually measured by the rate of change in real Gross Domestic Product (GDP). Economic growth is important because it leads to improved living standards, can reduce the burden of public and private debts and make it easier to address social issues such as poverty and inequality.