2.6.4 - Conflict and Trade

Question 1

SRAS Phillips curve

Answer 1

• During a period of high inflation there is low unemployment

Question 2

What is stagflation

Answer 2

• High unemployment and High unemployment
• which contradicts the original Philips curve
• This may be due to cost push inflation where costs of production increase so inflation increases.
• There would be a shift not just a movement along the curve
  Remember to shift the curve on the pc the opposite direction from the sras curve

Question 3

LRAS Phillips curve

Answer 3

• AD moves first and so we will see a shift from AD1 to AD2 so there will be an increase in the price level and so we will see an increase in Inflation
• However In the long run SRAS will move to ensure the equilibrium is at yfe

Question 4

Conflict expansionary policy and monetary policy

Answer 4

Expansionary fiscal & monetary policy -
- Increase government spending on Helps = reduced income inequality
- Cuts to regressive taxtion = reduced income inequality
- Govs spending = reduced unemployment and like economic growth

Conflict -
- Demand pull inflation
- Depletion of environmental resources.
- Current account deficit because 1. People have more disposable income so they spend on imports. 2. Demand pull inflation erodes the international competitiveness of exports and makes international goods more competitive so imports increase.
- Leads to budget deficit. (Gov relation)
- If tax cuts are cut for high income earners - this may worsen inequality.

Evaluation
- Demand pull inflation won’t occur if we are not a a full employment (Keynesian curve)
- Taxation will effect demand pull
- If there is innovation due to employment then we may innovate new climate friendly production process

Question 5

Contractionary fiscal and monetary

Answer 5

• Low and stable inflation
• Less natural resources are used so it protects the environment
• current account position is improved as import are less also since there will be lower inflation it makes our exports more competitive
  -Also reduces budget deficit

Conflict
- No economic growth
- high cyclical unemployment (use Philips curve or normal AD curve)
- reduced labour productivity

Eval
- Cost push inflation may occur due to shortages in production supplies
- There are other components of the current account
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Question 6

Supply side policies conflicts

Answer 6

• economic growth
• low unemployment
• decreased inflation (draw diagram)
• improves current account position as we would export more when our exports are more internationally competitive also supply side policies help to reduce long run costs which can help to reduce costs.

*Conflict/eval**
- in a recession you need demand side policies to increase growth and reduce unemployment
- gov finances (oppurtunuty costs)
- risk of environmental concerns if environmental laws are deregulated
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