Q.23 A balanced federal budget and a ... [FREE SOLUTION]

Chapter 1: Q.23 (page 25)

A balanced federal budget and a balance of trade are secondary goals of macroeconomics, while growth in the standard of living (for example) is a primary goal. Why do you think that is so?

Short Answer

Expert verified

While a balanced government budget and a positive trade balance are significant macroeconomic determinants, they are secondary to rising living standards for a variety of reasons.

1. It is widely believed that a country's standard of life is closely tied to its productivity.

The greater the level of living, the higher the productivity.

Step by step solution

Step 1:

Economic Growth: Economic growth is defined as a steady increase in the number of goods and services produced in a given economy. The primary goal of all world economies is to achieve higher levels of economic growth. The increase in the measure of GDP reflects this.

Explanation

While a balanced government budget and a positive trade balance are significant macroeconomic determinants, they are secondary to rising living standards for a variety of reasons. To begin with, one would expect a country's economics to be aimed toward improving the quality of life of its residents. All countries' political and economic decision-making is driven by this moral obligation, which should be deemed logical and expected.

Second, it is widely acknowledged that a country's level of life is closely linked to production. The greater the level of living, the higher the productivity. When a country's productivity is higher, it is more competitive on the global market, which leads to a stronger economy, which leads to a higher standard of living. Because this cycle has such strong ramifications on both the global and local economies (within a country), it only makes sense for macroeconomics to prioritize growth in the standard of living.