Which economic goal is most important?

One thing that you should learn from economics is that it's about choice. No matter what you look at there is a need to trade-off one goal for another.

This is true of macroeconomic goals. It isn't possible to have inflation, unemployment, economic growth, the Current Account and income distribution all exactly as you want. To improve one another inevitably gets worse.

In the 1940's it was decided that unemployment had to be the number one priority of government macroeconomic policy. Hardly surprising given the experience of the Great Depression (1930 - 33) which saw unemployment reach 25% or even more.

By the 1980's it was generally agreed that inflation needed to be the main priority. This change was, again, brought about through bitter experience. It was argued that if you got the price level stable then it was easier to achieve the other economic goals.

Below is an excellent article from The Guardian that explains why low inflation is beneficial and credits Australia's economic success over the last thirty years to a low inflation environment.

The Guardian article is here

 

The chart shows how inflation in Australia since the 1980's has been lower and less volatile than in the period immediately before 

This article is directly relevant to VCE students who must understand the goals of macroeconomic policy and the policy mix needed to achieve them. For IB students it is an excellent explanation of why achieveing price stability is important.