Circular Flow of Money

1. Low and stable inflation in the general level of prices. 2. High and stable employment. 3. Economic growth in the national output. 4. A stable balance of international trade and transaction. 5. Narrowing the income gap between wealthy and poor (reducing income inequality) 6. To reduce pollution and waste and to promote sustainable development. MACRO ECONOMIC OBJECTIVES OF GOVERNMENT

INFLATION 1. Inflation is a continuous rise in the average level of prices. If prices rise too quickly, it can be bad for business and an economy because. 2. It reduces the purchasing power of people’s income. 3. It causes hardship for people on low incomes 4. It increases business cost, especially if workers demand higher wages. 5. It makes goods and services produced in the economy more expensive o by than those purchased from other countries with lower rates of inflation. 6. Low and stable price inflation therefore makes it easier for private sector firms to manage their costs, 7. Low and stable prices ( relative to other countries' Imports ) will also help exporters to sell their products ( exports ) overseas and for consumers, especially those on low incomes, to afford goods and services.

1. Unemployment is defined as those who want to work and who are able to work but cannot find a job. 2. If unemployment rises, the total national output, GDP, is likely to fall. This will cause economic growth to fall. 3. Hi unemployment means a government may have to spend more on welfare payments to support the unemployed and their families; this means the government may have to raise taxes on businesses and working people. This will reduce their disposable incomes and spending on goods and services. 4. If people remain unemployed for a long time they may lose the skills and motivation that they need to work in new industrial sectors. High levels of employment therefore help to increase output, incomes, consumer demand and living standards. UNEMPLOYMENT

ECONOMIC GROWTH (EG) AND NATIONAL OUTPUT 1. Economic growth will boost output (GDP ) and incomes. This will help to raise the standard of living. 2. Fall in output can cause employment will fall. 3. Fall in output can cuase government tax revenues to fall and government spending will have to be cut. 4. A fall in output will cause the revenues and profits of firms will fall. 5. Entrepreneurs ( local investors as well as foreign investors ) will not invest in new firms.

INTERNATIONAL TRADE AND BALANCE OF PAYMENT (BOP) 1. Many countries sell their exports of goods and services to overseas residents and receive an incomes which represents and inflow of funds into the country. 2. A country may also receive investments funds from overseas as foreign investors also make foreign direct investments in our country. 3. Most countries seek to balance their inflows and outflows of funds from international transactions. Sudden changes in the amount of money flowing into or out of an economy can be very disruptive to the banking system, firms and governments. 4. If a country has more outflow of funds than inflow, this gives rise to a deficit on its balance of payments with other countries. 5. If a country has more outflow of funds than inflow, this gives rise to a deficit on its balance of payments with other countries. 6. In the case of a deficit in the balance of payment the country may run out of foreign currencies to buy imports.