Government macroeconomic intervention

Government action at different levels

Level	Typical roles	Why this level is used
Local	Managing infrastructure, waste collection, housing, planning, parks and public services.	Local authorities can respond to needs that differ between towns or regions.
National	Taxation, government spending, national laws, redistribution, macroeconomic policy and nationwide infrastructure.	The central government can coordinate policy across the whole economy.
International	Trade agreements, environmental cooperation, development assistance and work through international organisations.	Cross-border problems and trade relationships must be managed between governments

The macroeconomy and government aims

Macroeconomy - the economy as a whole, including total output, employment and the general price level.

Macroeconomic aim - an economy-wide outcome that a government wants to achieve.

Total demand - the total planned spending on a country's goods and services by households, firms, the government and foreign buyers.

Governments choose aims because economic performance affects incomes, jobs, business confidence, and quality of life. They set measurable criteria—for example, a target inflation rate — so performance can be judged.

Aim	Plain meaning	Why a government wants it	Possible criterion
Economic growth	A sustained increase in the economy's output.	Can raise incomes, jobs, tax revenue and living standards.	A positive annual rate of real output growth.
Full employment / low unemployment	Almost everyone willing and able to work at current wage rates can find work.	Raises incomes and output while reducing poverty and benefit spending.	A low unemployment rate, not literally zero.
Stable prices / low inflation	The general price level rises slowly and predictably.	Protects purchasing power and makes saving, borrowing and investment decisions easier.	Inflation close to a published target.
Balance of payments stability	Transactions, i.e. flow of trade into and out of the country, are not too imbalanced.	Supports confidence in the currency and reduces reliance on foreign borrowing.	A manageable current-account position over time.
Redistribution of income	Reducing very large income gaps and supporting people on low incomes.	May reduce poverty and improve access to necessities and opportunities.	Lower poverty or a narrower after-tax income gap.
Environmental sustainability	Meeting current needs without preventing future generations from meeting theirs.	Protects resources, health and future productive capacity.	Lower pollution, emissions or resource depletion.

Balance of payments - a record of a country's economic transactions with the rest of the world.

Why aims may conflict

Policy conflict - a situation in which progress towards one macroeconomic aim makes another aim harder to achieve.

A conflict is possible, not certain. The outcome depends on the economy's unused resources, the cause of the original problem and the policy chosen.

Possible conflict	Cause-and-effect chain	When the conflict may be weaker
Full employment vs stable prices	Policies that raise total demand may increase firms' sales and employment. Once spare resources are limited, firms may raise prices and wages, increasing inflation.	If unemployment is high and firms have unused capacity, output and employment may rise with little price pressure.
Growth vs environmental sustainability	More production and transport can use more non-renewable resources and create pollution, congestion and waste.	Clean technology, regulation and growth in low-pollution services can reduce environmental damage.
Full employment vs balance of payments stability	Higher employment raises household income and spending, including spending on imports. Import expenditure may then rise faster than export revenue.	If new employment produces competitive exports or substitutes for imports, export value can improve.
Economic growth vs balance of payments stability	Faster growth raises income and spending -> households and firms may buy more imports - > import expenditure rises -> the current account may worsen.	If growth raises productivity, export capacity or domestic substitutes for imports, the current account may improve instead.