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Economic Goals

A nation must choose which social goals are important to its citizens. It is against these goals that a country and its government will be judged for its effectiveness. Read on to learn more about the eight potential goals a nation must consider.

Goal #1 - Economic Growth

Economic growth simply means that more goods and services are produced as time passes. It is generally thought that if a society wants to improve its standard of living, it must have economic growth by producing higher levels of goods and services. Furthermore, if a society's population gets larger, even more economic growth must take place.

Economic growth, or output of goods/services, is measured by real Gross Domestic Product (GDP). Real GDP is the value of economic output adjusted for conditions like inflation or deflation.

Goal #2 - Full Employment

Full employment is achieved when all of an economy's resources are being used to their fullest extent.

Macroeconomic equilibrium is attained when total (aggregate) demand = total (aggregate) supply. The Bureau of Labor Statistics determines:

  • persons in the Labor Force (the number of employed and unemployed people in a society) and
  • those Not in the Labor Force (disabled, retired, students, and discouraged workers no longer seeking work).

It is natural for there to be persons who are unemployed in the economy at any given time.

  • These persons could have just started looking for a job or are between jobs (frictional unemployment).
  • They may also have lost their job because their skills are no longer needed or their job was outsourced abroad (structural unemployment).

We will learn more about unemployment in a future unit.

The natural rate of unemployment (otherwise known as full employment) is when 4%-5% of the Labor Force is unemployed due to frictional and/or structural unemployment.

Goal #3 - Economic Efficiency

Economic efficiency is the idea that resources are scarce and therefore, so they must be used wisely. If resources are wasted, fewer goods and services can be offered and fewer needs/desires can be satisfied. Economic decision-making must be efficient so that benefits outweigh the costs.

Goal #4 - Price Stability

Price stability is the absence of inflation or deflation.

  • If inflation (a rise in the overall price of goods/services) occurs, people need more money to purchase the goods/services they need and want.
  • Deflation means that there is a reduction of the general level of prices in an economy.
  • The goal of price stability acknowledges that significant changes in price levels greatly affect individuals and businesses.

Goal #5 - Equitable Distribution of Income

Economic equity can be defined as economic policy that follows our concepts of what is fair and what is unfair, or of what "should be" and "should not be." People have different ideas of what represents equity or fairness. However, in judging economic policy, the goal of economic equity reminds us to investigate which or what kinds of people are made better or worse off as a result of an economic policy. In other words, who gains and who loses from certain economic actions?

Goal #6 - Economic Freedom

Economic freedom includes:

  • the freedom of consumers to decide how they wish to allocate allocate means to divide and give out (something) for a special reason or to particular people, companies, etc. their spending among various goods and services;
  • the freedom of workers to choose to change jobs, join unions, and go on strike;
  • the freedom of individuals to establish businesses, decide what to produce, and decide when to change their pattern of production;
  • and the freedom of savers to decide when and where to invest their savings.

Goal #7 - Economic Security

Economic security is protection against economic risks, such as unemployment, accidents on the job, business failures, or natural disasters, over which people have little or no control.

Goal #8 - Balance of Trade

Balance of trade is the difference in value over a period of time between a nation's imports and exports of goods and services. The balance of trade is divided into the balance on goods merchandise and the balance on services.

  • If the value of a country's exports of goods and services is greater than its imports, it has a balance of trade surplus.
  • If the value of a country's imports of goods and services is greater than its exports, it has a balance of trade deficit.

Achieving These Goals

It is not possible to achieve all eight goals at one time. Think about this example:

  • A government wants to provide people with unemployment, social security, and disability benefits. However, it cannot do so unless it requires taxes of its people.
  • These mandatory taxes reduce the economic freedom of some people (by preventing them from having a choice over how they spend the taxes collected).
  • However, the taxes increase the economic security of the people who collect the disability, social security, or unemployment benefits.
  • The tradeoffs countries make depends on the values and politics of the people of each and every country.