If economic policies are designed to achieve specific economic goals, then we need to recognize a number of goals that are widely accepted in Canada and many other countries. They include:
• Economic growth Produce more and better goods and services, or, more simply, develop a higher standard of living.
Full employment able to work.
Provide suitable jobs for all citizens who are willing and
• Economic efficiency Achieve the maximum fulfillment of wants using the available productive resources.
• Price-level stability Avoid large upswings and downswings in the general price level; that is, avoid inflation and deflation.
• Economic freedom Guarantee that businesses, workers, and consumers have a high degree of freedom of choice in their economic activities.
• Equitable distribution of income Ensure that no group of citizens faces poverty while most others enjoy abundance.
• Economic security Provide for those who are chronically ill, disabled, laid off, aged, or otherwise unable to earn minimal levels of income.
• Balance of trade Seek a reasonable overall balance with the rest of the world in international trade and financial transactions.
Although most of us might accept these goals as generally stated, we might also disagree substantially on their specific meanings. What are "large" changes in the price level? What is a "high degree" of economic freedom? What is an "equitable" distribution of income? How can we measure precisely such abstract goals as "economic freedom"? These objectives are often the subject of spirited public debate.
Also, some of these goals are complementary; when one is achieved, some other one will also be realized. For example, achieving full employment means eliminating unemployment, which is a basic cause of inequitable income distribution. But other goals may conflict or even be mutually exclusive. They may entail tradeoffs, meaning that to achieve one we must sacrifice another. For example, efforts to equalize the distribution of income may weaken incentives to work, invest, innovate, and take business risks, all of which promote economic growth. Taxing high-income people heavily and transferring the tax revenues to low-income people is one way to equalize the distribution of income. But then the incentives to high-income individuals may diminish because higher taxes reduce their rewards for working. Similarly, low-income individuals may be less motivated to work when government stands ready to subsidize them.
When goals conflict, society must develop a system to prioritize the objectives it seeks. If more economic freedom is accompanied by less economic security and chapter one • the nature and method of economics
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