Explain why it is important for a country to attain its macroeconomic goals.

  1. Introduction
    1. Macroeconomic goals are often asserted to refer to sustained economic growth, low unemployment rate, price stability and satisfactory balance of payments.
  1. Body

Economic growth means that national income increases. Ceteris paribus, this means that people’s purchasing power has increased. Hence, they are able to buy and enjoy more goods and services, leading to a rise in their standard of living. Economic growth means that government can collect more tax revenues to finance expenditure on infrastructure, education and health care. All these will mean that the citizens are able to enjoy a higher level of economic welfare.

With low inflation, firms are better able to predict future revenue, costs and thus profits with greater certainty. Foreign investors may also be attracted to invest in the country due to relatively lower costs compared to other countries with higher inflation rates. Since inflation is low, this means that the economy is not at full employment and thus increase in investment will lead to increase in aggregate demand, thus hence increasing national output, employment and a multiple increase in national income. This allows the country to achieve two macroeconomic objectives.

If the economy can reduce unemployment to reach full employment, the previously unemployed can produce something of a higher value for society. This increases production as the economy moves from a point inside the PPC to a point on the PPC, representing actual economic growth. There is also a strong link between employment and consumer spending. As consumer’s confidence rise due to falling unemployment rate, there is increased willingness of people to spend. With a rise in consumption, aggregate demand rises, ceteris paribus. As a result, there is a multiple rise in national income and a concomitant rise in standard of living.

A healthy BOP means that the country is accumulating foreign exchange reserves. In times of need, these reserves can be used to finance purchase of Singapore imports as well as maintaining the strength of the Singapore dollar (SGD) through buying SGD and selling foreign currencies in the foreign exchange market. The strength of the Singapore dollar has in turn safeguarded the nation’s domestic purchasing power and helps to moderate increases in the cost of living. This thus raises the standard of living of the people.

  1. Conclusion

Achieving the macroeconomic goals has always been important. For Singapore, due to its small, highly open economy with limited resources and high dependency on international trade, the most important macroeconomic objective would be low inflation.

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