2.6.4 Conflicts and Tradeoffs between Objectives and Policies

Question 1

What’s a trade-off?

Answer 1

occurs when one objective is achieved at the expense by another

Question 2

What are the conflicts between Objectives?

Answer 2

• Inflation and unemployment
• Economics growth and sustainability
• Inflation and equilibrium on the current account of payments

Question 3

(Inflation and unemployment)

What happens when the government tries to control inflation?

Answer 3

• They are likely to try to dampen aggregate demand

Question 4

Examples of Inflation control

Answer 4

• Less spending will mean less upward pressure on prices
• The government might increase taxes or the Monetary Policy Committee (MPC) might increase interest rates
• The impact of these may prevent inflation but they will also mean less spending in the economy
• Firms may start laying off workers because they are unable to sell all