Conflicts Between Macroeconomic Objectives

Governments typically pursue four key macroeconomic objectives: sustained economic growth, low unemployment, low and stable inflation, and a satisfactory balance of payments position. However, pursuing one objective often makes it harder to achieve another. Understanding these trade-offs and conflicts is central to macroeconomic analysis and policy evaluation at A-Level.

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The Four Main Macroeconomic Objectives

Objective	UK Target/Benchmark	Responsible Body
Economic growth	Sustained real GDP growth (trend rate ~2–2.5% p.a.)	Government (fiscal policy); Bank of England (monetary policy)
Low unemployment	Unemployment at or near the natural rate (~4–5%)	Government (supply-side policies); Bank of England
Low and stable inflation	CPI = 2% ± 1 percentage point	Bank of England Monetary Policy Committee (MPC)
Satisfactory balance of payments	Sustainable current account (no specific target)	Government (trade policy); market forces

Additional objectives sometimes included: equitable distribution of income, environmental sustainability, balanced government budget.

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The Phillips Curve

The Original Phillips Curve (1958)