Macroeconomic Objectives: Achieving Full Employment and Price Stability

Posted on Jan 20, 2025 in Economy

Macroeconomic Objectives: Balance and Changes

The set of macroeconomic objectives can be summarized in one: to achieve full employment with price stability and more efficient.

Factors Affecting the Economy

  1. Internal Market Forces: Changes in population, consumer behavior, investment, and technological innovation.
  2. External Perturbations: Events that happen around us and influence the government.
  3. Government Action: Directing and controlling the economy through fiscal and monetary policy.

Objectives of a Macro Economy

  • GDP Growth
  • Full Employment
  • Price Stability
  • Foreign Equilibrium

Consumption

Consumption is the total expenditure incurred by families on goods and services in a given period. This includes both durable goods (cars) and non-durables (food, travel, etc.), but excludes the purchase of housing, which is considered a capital expenditure.

Factors of Consumption

  1. Disposable Income of Families: Higher income leads to more consumption. Permanent income (averaged over a lifetime) is also important.
  2. Interest Rates and Credit Facilities: Higher interest rates lead to lower consumption.
  3. Life Cycle: The young and elderly are more likely to spend their income than middle-aged individuals.

Volume of Consumption in the Economy

Two-thirds of GDP is consumed. Changes in consumption can cause imbalances that affect the whole economy.

Indicators of Consumption Evolution

  1. Expectations of household spending
  2. Car registrations
  3. Sales in large areas (supermarkets and large stores)
  4. Other indicators: gasoline consumption, retail sales, consumer goods imports

Confidence in the future is a key determinant of consumption.

Economic Investments

Economic investments involve the acquisition of goods and production to produce other goods. Investment costs are key to future growth and consist of:

  • Investment in plant and equipment
  • Construction of housing for family use

The sum of both components is the gross fixed capital formation, which is 20% of the GDP.

Types of Economic Investment

  1. Replacement Investment: Replacing machinery or equipment that is obsolete.
  2. Expansion Investment: New equipment to increase production.

The relationship with investment costs is that if households do not consume, companies do not invest, leading to economic stagnation.

Factors Affecting Investment

  1. Interest Rates: Higher interest rates make loans more expensive, reducing investment.
  2. Capacity Utilization: If a company is not using its full capacity, there is no reason to invest.
  3. Confidence in the Future: Expectations about future demand and economic conditions.