Question

Discus Five microeconomic objectives:

1. Economic growth

2. Full employment

3. Price stability

4. Balance of stability (or External stability

5. Equitable distribution of income

Answer 1

1) Economic growth can be attained by increasing the ability to produce products and services in an economy. This objective is best indicated by measuring the rate of production growth. When an economy produces more goods that can be used to satisfy more needs and wants; society is better off; rise in the living standards; and scarcity is less of an issue.

2) Unemployment is defined as involuntary idle­ness of mainly labour force and other resources of production. Unemployment (of labour) is closely related to the aggregate output of an economy. When the rate of unemployment is higher, the more the divergence between actual aggregate output (or CDP/GNP) and potential out­put. Thus to ensure full employment is one of the main objectives of macroeco­nomic policy is

3) Price stability means that prices remain stable largely, and there is not rapid deflation or inflation. It is one of main indicators of health of an economy. A sustained rise in price level and a declining price level produce destabilising ef­fects in an economy. This objectives helps in preventing the economic fluctuations however also helps in the achievement of a steady growth of an economy

4) External stability refers to the equilibrium in the Balance of payments; and a nation aim at balanced flow of products, services and assets into and out of the nation. External instability in prices would create an obstacle on the smooth flow of products and services between countries; and erodes the confidence of currency.

5) The distribution of income needs to be fairer and equitable in order to ensure social justice; policymaker applies the macroeconomic policy instruments. Like the other objectives of an economy, the equitable distribution of income and wealth is a partly subjective or normative issue