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ECONOMIC GOALS: Five conditions of the mixed economy, including full employment, stability, economic growth, efficiency, and

equity, that are generally desired by society and pursued by governments through economic policies. The five goals are typically divided into the three that are most important for macroeconomics (the macroeconomic goals of full employment, stability and economic growth) and the two that are most important for microeconomics (the microeconomic goals of efficiency and equity). A direct reflection of the scarcity problem is that human beings have always sought ways to improve their lives and living standards. On a society-wide basis these actions are commonly guided by the pursuit of generally accepted economic goals. First consider the five goals in more detail. Microeconomic Goals Efficiency and equity are the two microeconomic Five Goals goalsmost relevant to markets, industries, and parts of the economy, and are thus important to the study of microeconomics. Efficiency: Efficiency is achieved when society is able to get the greatest amount ofsatisfaction from available resources. With efficiency, society cannot change the way resources are used in any way that would increase the total amount of satisfaction obtained by society. The pervasive scarcity problem is best addressed when limited resources are used to satisfy as many wants and needs as possible. While efficiency is indicated by equality between demand price andsupply price for a given market, there are no clear-cut comprehensive indicators for attaining this efficiency goal. While it is possible, in theory, to pinpoint what is needed for efficiency, the complexity of the economy makes the task difficult to accomplish in practice. Equity: Equity is achieved when income and wealth are fairly distributed within a society. Almost everyone wants a fair distribution. However, what constitutes a fair and equitable distribution is debatable. Some might contend that equity is achieved when everyone has the same income and wealth. Others contend that equity results when people receive income and wealth based on the value of their production. Still others argue that equity is achieved when each has only the income and wealth that they need. Equity means income and wealth are distributed according to a standard of fairness. But what is the fairness standard? It could be equality. Or it could be the productive value of resources. Or it could be need. Standards for equity moves into the realm of normative economics. Macroeconomic Goals Full employment, stability, and economic growth are the threemacroeconomic goals most relevant to the aggregate economy and consequently are of prime importance to the study of macroeconomics. Full Employment: Full employment is achieved when all available resources (labor, capital, land, and entrepreneurship) are used to produce goods and services. This goal is commonly indicated by the employment of labor resources (measured by the unemployment rate). However, all resources in the economy-labor, capital, land, and entrepreneurship--are important to this goal. The economy benefits from full employment because resources produce the goods that satisfy the wants and needs that lessen the scarcity problem. If the resources are not employed, then they are not producing and satisfaction is not achieved. Stability: Stability is achieved by avoiding or limiting fluctuations in production, employment, and prices. Stability seeks to avoid the recessionary declines and inflationary expansions of business cycles. This goal is indicated by month-to-month and year-to-year changes in various economic measures, such as the inflation rate, the unemployment rate, and the growth rate of production. If these remain unchanged, then stability is at hand. Maintaining stability is beneficial because it means uncertainty and disruptions in the economy are avoided. It means consumers and businesses can safely pursue long-term consumption and production plans. Policy makers are usually most concerned with price stability and the inflation rate. Economic Growth: Economic growth is achieved by increasing the economy's ability to produce goods and services. This goal is best indicated by measuring the growth rate of production. If the economy produces more goods this year than last, then it is growing. Economic growth is also indicated by increases in the quantities of the resources--labor, capital, land, and entrepreneurship--used to produce goods. With economic growth, society gets more goods that can be used to satisfy more wants and needs--people are better off; living standards rise; and scarcity is less of a problem. Tradeoffs The five economic goals of full employment, stability, economic growth, efficiency, and equity are widely considered to be beneficial and worth pursuing. Each goal, achieved by itself, improves the overall well-being of society. Greater employment is typically better than less. Stable prices are better than inflation. Economic

growth is better than stagnation. Efficiency is better than inefficiency. An equitable distribution is better than inequality. However, the pursuit of one goal often restricts attainment of others. For example, policies that promote efficiency might create unemployment or policies that improve equity might limit economic growth. Consider a few hypothetical situations, depicted by the hypothetical Republic of Northwest Queoldiolia, in which the pursuit of one goal limits achieving another goal. Full Employment and Stability: The Central Bank of Northwest Queoldiolia seeks to promote lower rates of unemployment throughexpansionary monetary policy. The economy expands, unemployment falls, and full employment is achieved, but inflation emerges from the over stimulated economy. Efficiency and Equity: The Congress of Northwest Queoldiolia seeks to address historical ethnic inequities by establishing an affirmative action program. Opportunities for ethnic minorities provided by the program enable more equal distributions of income and wealth, but efficiency is prevented because some of the employed workers are less skilled at their jobs. Economic Growth and Full Employment: Seeking to keep pace with economic growth in neighboring Southeast Queoldiolia, the President of Northwest Queoldiolia enacts an intense program of scientific research and development. The program bears ample fruit, creating scores of new technological innovations that lead to high rates of economic growth, but implementation of the innovations disrupts the economy by throwing millions of people who lack the necessary skills or training needed by the new technologies out of work. Policies and Politics The pursuit of these five economic goals is inherently an act of normative economics. In fact, the normative part of normative economics is based on the word "norm" which is synonymous with the word "goal." Normative economics is essentially the pursuit of economic goals. In a mixed economy, the pursuit of these goals is largely directed by governments. This, of course, brings into play the wonderful world of politics and never-ending debates over which of these five goals is most worth pursuing with economic policies. As the discussion turns to politics and policies, two viewpoints tend to emerge--liberal and conservative. Generalities are, of course, fraught with exceptions. However, with that caution in mind, each of the two political views have historically placed greater emphasis on the attainment of some goals over others. On the macroeconomic side, liberals have tended to seek full employment over stability and economic growth. Conservatives, in contrast, have sought economic growth and stability, especially price stability, more so than full employment. On the microeconomic side, liberals have tended to prefer equity over efficiency and conservatives have usually preferred efficiency over equity. 1. Full Employment 2. Stable Prices 3. Economic Growth 4. Balanced Budget 5. Balance-to-Payment Equilibrium Unemployment and inflation are two intricately linked economic concepts. Over the years there have been a number of economists trying to interpret the relationship between the concepts of inflation and unemployment. There are two possible explanations of this relationship one in the short term and another in the long term. In the short term there is an inverse correlation between the two. As per this relation, when the unemployment is on the higher side, inflation is on the lower side and the inverse is true as well. This relationship has presented the regulators with a number of problems. The relationship between unemployment and inflation is also known as the Phillips curve. In the short term the Phillips curve happens to be a declining curve. The Phillips curve in the long term is separate from the Phillips curve in the short term. It has been observed by the economists that in the long run the concepts of unemployment and inflation are not related. As per the classical view of inflation, inflation is caused by the alterations in the supply of money. When the money supply goes up the price level of various commodities goes up as well. The increase in the level of prices is known as inflation. According to the classical economists there is a natural rate of unemployment, which may also be called the equilibrium level of unemployment in a particular economy. This is known as the long term Phillips curve. The long term Phillips curve is basically vertical as inflation is not meant to have any relationship with unemployment in the long term. It is therefore assumed that unemployment would stay at a fixed point irrespective of the status of inflation. Generally speaking if the rate of unemployment is lower than natural rate, then the rate of inflation exceeds the limits of expectations and in case the unemployment is higher than what is the permissible limit then the rate of inflation would be lower than the expected levels. The Keynesians have a different point of view compared to the Classics. The Keynesians regard inflation to be an aftermath of money supply that keeps on increasing. They deal primarily with the institutional crises that are encountered by people when they increase their price levels. As per their argument the owners of the companies keep on increasing the salaries of their employees in order to appease them. They make their profit by increasing the prices of the services that are provided by them. This means there has to be an increase in the money supply so that the economy may keep on functioning. In order to meet this demand the government keeps on providing more money so that it can keep up with the rate of inflation. Well, if you're talking about a mixed economy with government intervention, the major economic objectives of the government are: Efficient resource allocation - attempting to ensure the nation's productive factors are put into their most valued resources.

Price stability - maintaining low inflation. Full employment - reducing unemployment to as low as possible without aggravating inflation (usually close to the natural cyclical rate of UE.) External stability - maintaining a sustainable Balance of Payments position and a stable currency. Economic growth - achieving a sustainable rate of economic growth (i.e growth without inflation.) Distribution of income - removing socially unacceptable income disparities (inequalities.) However, the government cannot achieve all objectives at once. Some objectives are compatible (eg. Economic growth and full employment), some incompatible (eg. Price stability and economic growth). Ethics And Economic Actors

Charles K. Wilber (University of Notre Dame, USA) Copyright 2003 Charles K. Wilber Introduction Economics and ethics are interrelated because both economists (theorists and policy advisers) and economic actors (sellers, consumers, workers, investors) hold ethical values that help shape theirbehavior. In the first case economists must try to understand how their own values affect both economic theory and policy. In the second case this means economic analysis must broaden its conception of human behavior. In a previous article in this journal I dealt with the first issue. In this article I will focus on the importance of the second issue-economic theory, with its myopic focus on self-interest, obscures the fact that preferences are formed not only by material selfinterest but also by ethical values, and that market economies require that ethical behavior for efficient functioning. Values of Economic Actors It is important to recognize that though Adam Smith claimed that self-interest leads to the common good if there is sufficient competition; he also, and more importantly, claimed that this is true only if most people in society have internalized a general moral law as a guide for their behavior.1 This means that the efficiency claims that economists make for a competitive market system require that economic actors pursue their self-interest only in "fair" ways. Smith believed most people, most of the time, did act within the guidelines of an internalized moral law and that those who didnt could be dealt with by the police power of the state. One result of this recognition must be the acknowledgment that a better conception of human behavior is needed. Thus, I argue that (1) people act on the basis of embodied moral values as well as from self-interest and (2) the economy needs that ethical behavior to be efficient. Hausman and McPherson recount an experiment in which wallets containing cash and identification were left in the streets of New York. Nearly half were returned to their owners intact, despite the trouble and expense of doing so to their discoverers. 2 It could be argued that altruistic motives-- modeled as the concern for anothers utility as an element within ones own utility function-- ultimately are an extension of self-interested behavior. Such an argument is substantially weakened in this case because the discovered wallets belonged to persons unknown to the finders. Hence, the personal satisfaction and pleasure stemming from the wallets return ought to be significantly diminished, as altruistic sympathies are usually weaker with a lack of personal familiarity. The effort expended and the apparently unselfishbehavior demonstrated by those who returned the lost goods may, as Hausman and McPherson assert, more likely reflect a commitment to societal norms than a reflection of egoistic desires. Similarly, it usually is argued that the provision of such goods as public broadcasting and church services will be hobbled by the classic free-rider problem that accompanies public goods. Many consumers of these goods do indeed fail to respond to funding appeals or shirk as the collection plate passes. This, however, does not explain the motivation of the many who do give. Are we to attribute irrationality to those who contribute to public broadcasting, for example, knowing that their gift offsets the free-loading of others? In the case of public church collections, it might be argued that the anticipated approval of fellow church-goers entices contributions and their threatened opprobrium dissuades stinginess. Masking the amount of ones gift in a closed fist or a sealed envelope are effective and relatively costless, however, and suggest that perhaps a sense of duty, obligation or gratitude might be more important in compelling contributions to church collections. It is not only for the sake of accuracy that economists should pay attention to evidence that human actions are guided by concerns not solely egoistic, but also because there are real economic consequences to nonegoistic behavior. Robert Solow has suggested that principles of appropriatebehavior among workers may explain why labor markets are not fully clearing. Appropriate behaviordictates that one not undercut a peer in order to get that persons position. As Albert Hirschman argues, this example of seemingly non-self-interested behavior may entail market inefficiencies and resulting costs, but most in society (with the exception of many economists) would deem the portrait of human interaction it paints as more than worth it.3