Macroeconomic Framework

When you consider the world in which we all live, you cannot deny that there are flourishing nations and perishing nations. Some nations are economically advancing while others are drowning in devastation. Is it by default setting for some nations to flourish and others to perish?

In this article we will unveil fundamental objectives and dive just a bit on the underlying theory around these objectives.

There are five fundamental objectives that guarantee economic wellbeing at macro level, they are as follows:

1. Economic growth

2. Full employment

3. Price Stability

4. Fair distribution of income

5. Equilibrium in the balance of payments

Objective and policy seem to be used quite interchangeably in economic conversations centred on this topic, and that create an impression that they have the same meaning. Do they really have the same meaning?

Let’s explore a scenario that will provide a concrete perspective on this matter.

Suppose John is writing a preliminary test tomorrow, and he has to get a distinction in order to qualify for final examination.

The attainment of a distinction in the test is John’s objective, but how exactly a distinction is going be attained revolve around micro policy. How, what and when John is going to study depends on his human condition.

Basically, objective is what you are trying to achieve and policy is how you are going to achieve it. When we talk about macroeconomic objective we are talking about what government hopes to achieve, but how it will achieve it is a different ball game.

Profoundly, macroeconomic objective is a precursor of macroeconomic policy. In other words, objective has to be in existence before policy can be established.

Once an objective is determined and policy is subsequently designed, what should follow is the manifestation of a desired reality. So, this manifestation will unfold if and only if there is correlation between an objective and policy.

How do we measure the effectiveness of an economic policy? How do we know that a policy is giving us the expected results? Well, there are different systems used to measure the effectiveness of a policy for different macroeconomic objectives.

Essentially, a specific system is meant to assess the effectiveness of an economic policy for a particular macroeconomic objective. For instance, Gross Domestic Product (GDP) is a system used to determine if a policy is driving economic growth. So, we look at the GDP figure to get a sense of the nation’s economic trajectory.

Suppose there are two countries involved, Country A and Country B. They are both in a recession and unemployment is skyrocketing as a result of the pandemic.

In Country A, joblessness is in the headlines and at the top of government’s agenda. Members of parliament deliberate on measures to be taken to bring the unemployment rate down. Cabinet construct a data driven mechanic to mitigate the severity of the macroeconomic situation.

In Country B, joblessness is in the headlines but not at the top of government agenda. Members of parliament are always insulting each other, and when they are in a good mood they discuss and agree on issues that have no bearing on the country’s macroeconomic situation. They play party politics and foster resolutions that advance their own political interest, and this is done at the expense of the ordinary lives on ground.

Which country are you, A or B?

Fundamental objectives stated above are what nations of the world are trying to achieve. In other words, they have the same macroeconomic objectives, however, what separate them from each other is policy. They do not advocate for the same economic policy, that is why, there are flourishing nations and perishing nations.

It is not by default setting for certain nations to flourish and others to perish, it all comes down to economic policy. Flourishing nations advocate for sound economic policy and perishing nations advocate for unsound economic policy.