Economic Goals: Definition & Overview

You may have already learned what an economy is in our article on economics. However, every national economy is also pursuing certain goals. You can find out here what they are and how they can be measured and achieved!

Economic goals at a glance

The goals pursued by the national economy are so-called stability goals. You are in stability law recorded from 1967. The stability law not only serves economic stability, but also economic growth. This law is to be taken into account by the federal and state governments. This law sets out the following goals of economic policy:

  • price level stability
  • full employment
  • external balance
  • steady and reasonable economic growth

These goals are not defined at the level of individual actors in the economy, such as the state, households or companies, but at a collective level. This means that all economic actors have an interest in the joint achievement of goals. Thus, they are at the level of macroeconomics fixed.

Economics will be in Macro and Microeconomics assigned. the macroeconomics deals with the macroeconomic behavior of the individual economic sectors and analyzes the macroeconomic markets and their relationships. the microeconomics on the other hand, deals with the behavior of individual economic subjects.

The Stability Act stipulates that the state, with its actions, goal achievement should contribute. However, the targets relate only to the economy. However, the societal and social aspects are not taken into account. Therefore, two further goals were set: environmental Protection and fair distribution of income and wealth.

With regard to the economic goals can be between qqualitative and quantitative goals are differentiated.

Economic goals: quantitative and qualitative

In economics one can of quantitative and qualitative goals speak. Four of the economic objectives are easy to quantify. These are in stability law recorded from 1967. But what exactly is the difference between quantitative and qualitative?

quality describes a state, a condition or properties.

quantity describes the quantity or number.

Quantitative goals of an economy

the quantitative goals of the national economy add up to this magic square, which you will learn more about in the next section. For better understanding, we have summarized the four quantitative goals of an economy for you:

Stable price level

This goal can also be used as Monetary Preservation Goal be designated. You can measure the prices of goods and services in monetary terms, i.e. in money. The goal is the purchasing power to ensure society. Therefore, it is important to have a decisive inflation to prevent. But what exactly does it mean inflation?

One inflation describes the process of price increasewhich reduces the value of money.

The opposite of inflation is the deflation. Here, prices go down, which means that money increases in value.

With this goal is therefore the inflation rate the quantitative variable that you can use to determine the achievement of goals. It results from the percentage change of the general price levels of the goods and services of an economy. For a stable price level is a inflation rate from 2% ideal.

full employment

This goal is about ensuring a high level of employment in an economy. To do this, it is necessary to create and maintain jobs. In other words: full employment means that unemployment within an economy should be kept as low as possible.

You’ve probably heard the word «unemployment rate» heard or read. But you can’t remember exactly what that is? No problem!

the unemployment rate provides information on the proportion of unemployed among all potential employees within an economy.

the full employment aims to keep the unemployment rate as low as possible. The goal of full employment is deemed to have been reached when the unemployment rate at 3% or below.

However, the unemployment rate at which one speaks of full employment is sometimes disputed. Some opinions tend to say that this must be under 2%, others have the view that it must be under 4%.

Steady and reasonable economic growth

This goal defines that within an economy economic growth should be achieved. Prosperity should be secured through efficient consumption and income opportunities. This prosperity is particularly important for less affluent sections of the population. The economy should grow continuously, hence the word «constant». Fluctuations should be avoided in order to counteract the effects on other areas of an economy, such as the labor market.

That steady and reasonable economic growth is based on gross domestic product measured.

That Gross domestic product (GDP) is the measure of the economic performance of an economy over a certain period of time. The value of the goods and services produced domestically is measured.

Great for a steady and reasonable economic growth is a GDP from up to 5% yearly.

Wondering why this shouldn’t be higher? Quite simply: both too fast and too little economic growth would destabilize the price level, which would lead to a drop in employment and that external balance comes to falter.

external balance

The goal of external equilibrium refers to an economy’s trade with other economies, i.e. domestic and foreign trade. In concrete terms, this means that an economy is neither trade surpluses still trade deficits should generate in foreign trade. You want to know what trade surpluses and trade deficits are?

trade surplus means that Germany exported more goods, i.e. sold goods abroad, than was imported. Import is the opposite of export. So it means sourcing goods from abroad. at trade deficits it’s the other way around. Germany imported more than it exported.

Did you know that Germany has been running a trade surplus for over 60 years? As a result, the other countries are more indebted to Germany than Germany is to other countries. Alongside China and the USA, Germany is also regarded as the export world champion.

The target value by which you can measure the achievement of the goal is the external contribution ratio. It records the values ​​of the imports and exports of tangible and intangible goods and services of an economy within an accounting period. A external balance occurs when the sum of imports equals the sum of exports.

Qualitative goals of an economy

Next to the quantitative goals of an economy also exist qualitative targets. The achievement of these goals cannot be measured by numbers. If the magic square is expanded by these two goals, it is the magic hexagon.

environmental Protection

You are definitely the current problem of the climate change known. This problem causes the environmental Protection plays an increasingly important role in all areas. The environment is a limited resource that is used by companies and households. Through the exploitation of resources, the construction of buildings, the disposal of by-products or the transport of goods, economic life has a significant impact on nature. To help maintain this, laws have been enacted to regulate and limit emissions, for example.

An example of such a law is § 324 StGB:

§ 324 StGB water pollution

(1) Anyone who, without authorization, pollutes a body of water or otherwise adversely alters its properties shall be punished with imprisonment for up to five years or a fine.

(2) The attempt is punishable.

(3) If the perpetrator acts negligently, the penalty is imprisonment for up to three years or a fine.

Fair distribution of income and wealth

This goal is pursued in order to social balance through the fair distribution of income and wealth. A distinction must be made between justice and equality. It’s not about everyone having the same income, but about maintaining certain relationships.

Economic goals: magic square and hexagon

That magic square includes the four economic policy goals of stability law:

Fig. 1: Magic SquareSource: Wikipedia

You’re probably wondering why the square is called «magic». This is because the four goals cannot all be achieved at the same time. There are differences between the goals interactions and conflicts. This means that economic policy measures to achieve one goal can affect the realization of other goals.

There is a conflict of objectives between price level stability and steady and appropriate economic growth. If there is an economic upturn, i.e. positive economic growth, prices will also rise (increased inflation rate). In order to counteract this, the key interest rate has to be raised, which means that loans and thus also investments for companies become more expensive. This in turn inhibits economic growth.

Fig. 2: Magic hexagonSource: 123versicherung.eu

That magic hexagon supplements the economic policy goals of the magic square with the societal and social goals (environmental protection and fair distribution of income and wealth). Are all goals of magic hexagon fulfilled, then there is a macroeconomic equilibrium before. As with magic square but here too, the permanent and simultaneous fulfillment of all goals is not possible in reality.

There is a trade-off between economic growth and fair income distribution. In a market economy, the state should intervene as little as possible in economic processes. This makes it easier for companies to work independently and efficiently. However, this also makes it more difficult for the state to distribute assets and income fairly. Without strict state regulation, market power easily emerges, which widens the gap between rich and poor.

You can learn more about the magic square and hexagon by reading our articles about them.

Target relationships at a glance

Here you will find an overview of how the various goals relate to each other. There are basically three types of target relationships:

  • goal complementarity: The goals complement each other.
  • target competition: The targets exclude or interfere with each other.
  • target indifference: The targets do not affect each other.