2.6 - Policy conflicts

Question 1

Fiscal policy

Answer 1

• increase GS today to increase AD could mean an increase in taxes tomorrow
• decrease GS leads to decreased budget deficit, but also decrease in living standards

Question 2

Monetary policy

Answer 2

• decrease r/i controls inflation, but decreases value of savings
• increase r/i leads to decrease in AS as borrowing becomes expensive (decrease investment), this could lead to cost push inflation

Question 3

Supply-side

Answer 3

• increase GS today leads to decrease in GS tomorrow
• infrastructure projects can harm the environment

Question 4

High economic growth

Answer 4

Low unemployment, maybe balanced current account, balanced budget.
However, high inflation, unsustainable fot the environment, widens income inequality.
High economic growth contrasts with many other Macroeconomic policy objectives.