22 - Macroeconomics objectives - Potential conflicts between macroeconomic objectives

Question 1

Conflicting macroeconomic objectives

Answer 1

Conflicting macroeconomic objectives means that it is not always possible for a government to simultaneously achieve all of its macroeconoimc objectives because of potential trade-offs.

Question 2

Examples of conflicting macroeconomic objectives

Answer 2

• Trade-off between unemployment and inflation
• High economic growth and low inflation
• High economic growth and environmental sustainability
• High economic growth and equity in income distribution

look at notes for details

Question 3

Short run Phillips curve (SRPC)

Answer 3

Shows a potential trade-off between pursuing low unemployment and low inflation as macroeconomic objectives.

look at notes for details, graphs

Question 4

Long run Phillips curve (LRPC)

Answer 4

Shows that in the long run, there is only a single rate of uemployment (the natural rate) that is consistent with a stable inflation rate. Hence, the LRPC is vertical, that is, there is no trade-off between low inflation and low unemployment.

look at notes for details, graphs

Question 5

Stagflation

Answer 5

Stagflation occurs when there is rising inflation but falling national output and rising unemployment.