The goal of macroeconomic policies is to maintain a steady growth for the economy, achieve full employment situation and maintain price stability. Let us discuss all three macroeconomic parameters.
Employment: One major objective of macroeconomics is to remove or reduce unemployment. The rate of unemployment is the percentage of unemployed in the total labor force. By unemployed we mean that a person willing to work at the prevailing wage rate is not getting an employment. Unemployment can be seasonal, structural, cyclical and frictional.
Growth or increase in the GDP: Another goal of macroeconomics is to foster growth of the economy. Growth means increase in the GDP over time. The GDP is the sum of the value of all the final goods and services produced in an economy in an accounting year . There are three methods of measuring GDP, the income method, the expenditure method and the production or value added method. In the income method the sum of income of all the factors involved in the production process is calculated. In the expenditure method the sum of consumer spending, investment or capital expenditure and government expenditure is taken into account. In the production method the value of the final product is taken into account.
While calculating the GDP we should keep in mind that intermediate goods and transfer income should not be included in the GDP. Intermediate goods are inputs for other goods. Including them will lead to double counting. Transfers do not originate from any production process so they should be excluded.
Inflation: Inflation is the phenomenon of continuous rise in the prices of almost all goods and services in the economy. Inflation is usually measured by the percentage change in the Consumer Price Index (CPI). In some cases the Wholesale Price Index (WPI) is also used as an index of inflation.
Works Cited
Mankiw, G.N. Macroeconomics. Macmillan, 2013.
