Chapter 5.

Key performance indicators.
There are certain indicators that economist should examine to find out how well an economy is performing.One of them is economic growth.
Economic growth: in the short run it is an increase in real GDP,in a long run-an increase in productive capacity.
Another indicator is unemployment.
Unemployment is a situation when people who are willing and able to work are out of work.Usually,when countries output increases,unemployment falls and economy is thought to be doing well.But some people may not be in the labour force because they are homemakers or disabled.This people are not regarded as unemployed,they are economically inactive (neither employed nor unemployed).
Inflation (sustained rise in price level ) is another indicator of economic performance. But a country may also experience deflation which is an opposite to inflation.
And the last one is balance of payments.This is a record of money flows coming in and going out of the country.

Objectives of the government economic policy.
There are 4 main objectives of the government economic policy:
- Achieve economic growth
- Reduce Inflation
- Reduce unemployment
- Balance of payment(international trade)

Economic growth.
Government wants to achieve economic growth because of the benefits its brings.One of those benefits is an increase in living standards.But it is important for the government to achieve steady and sustainable economic growth.
Steady economic growth means without negative fluctuations in economic activities.
Sustainable economic growth:growth which can continue over the time.
There are two types of sustainable economic growth: the year after year an the generation after generation economic growth.
The first type can be achieved if increases in AS match increases in AD.Government is trying to achieve the actual economic growth by matching trend growth.
Trend growth:the expected increase in potential output over time.It is measure of how fast the economy can grow without generating inflation.

To sustain economic growth from one generation to another the methods of raising productive potential and output must not endanger future generations` ability to grow.This means avoiding depleting non-renewable resources and stop damaging environment,reducing pollution.
EMPLOYMENT AND UNEMPLOYMENT.
High employment and low unemployment is another objective of government policy.Some governments state that their objective is full employment.
Full employment:a situation where those wanting and able to work can find employment at the going wage rate.
As well as trying to ensure that people have job government is trying to encourage more people to enter the work force,because it should increase productivity of the country.
INFLATION.
A third objective is low and stable inflation rate. As well as in case of unemployment,price stability does not actually mean zero inflation,because for a good performance of the country there still should be the small percentage of inflation.For example,the Bank of England set the target to achieve a 2% of inflation rate.
BALANCE OF PAYMENTS
In the past, government wanted to achieve a satisfactory balance of payments. However,nowadays it may not be too concerned in the short term if there are more exports than imports,for example,if this deficit is arising from the imports of raw materials that later can be converted into finished goods that could be exported.There also could be a current account deficit (when more money is leaving the country than coming into).But in the longer run government is still likely to want to see an increase in international competitiveness.