2.6.4 - Conflicts & Trade - Offs Between Objectives And Policies

Question 1

What Are Some Possible Trade Off Between Macroeconomic Objectives?
(4 Points)

Answer 1

~ Economic growth and inflation.

~ Economic growth and environmental sustainability.

~ Economic growth and current account balances.

~ Unemployment and inflation.

Question 2

What Does The SR Philips Curve Show?

Answer 2

Trade off between unemployment and inflation.

Question 3

Draw The Diagram For The SR Philips Curve & Explain It
(4 Points)

Answer 3

~ When there is low unemployment, workers have higher bargaining power, due to fewer workers available.

~ This means firms have to pay higher wages, or they’ll lose workers.

~ Higher wages means more costs, this can be transferred as higher prices, so they’ll make a profit.

~ Higher prices, means higher inflation.

Question 4

What Are Some Possible Trade Offs Between Macroeconomic Policies?
(3 Points)

Answer 4

~ Expansionary monetary and fiscal polices -> higher demand pull inflation, current account deficits, balance deficit and environmental effects.

~ Contractionary fiscal and monetary policies -> lowers growth, higher unemployment, reduced incomes.

~ Supply side policies -> government finances damages, worsen income inequality and living standards.