Governments have a number of macroeconomic policy objectives, they include:
* Full employment
* Low and stable inflation
* Strong and sustainable Economic growth
* A stable 'balance of payments' (external stability)
* Equity in the distribution of income
These are all worthwhile and important goals. However it is quite impossible to achieve them all at once. Because often improving one makes another worse!
A classic conflict is between inflation and unemployment. If governments push unemployment down they raise the demand for goods and services through higher Aggregate Demand (AD) and this pushes inflation up. Reducing AD to lower inflation means firms need fewer workers. It's a tough choice.
Typically governments adopt targets for each variable which they hope will mean they achieve a compromise.
In unemployment the ideal situation is seen as achieving the NAIRU. That is the Non-Accelerating Inflation Rate of Unemployment. At this rate the level of AD is consistent with stable (not necessarily zero) inflation.
This is a complex issue and I won't try to explain how the NAIRU is determined. However to use the NAIRU for policy the government must know the level of unemployment it represents.
In the BBC article below the Governor of the Bank of England (a former Canadian Central Bank Governor) makes it clear that the Bank of England has changed its mind about what level the UK NAIRU is, and suggests they don't quite know the correct level.
This illustrates the problem of policy making and also highlights how policy makers look to balance their aims with the correct policy mix rather than rushing headlong to achieve a single goal.
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