3.4 Policy Conflicts

Question 1

what are the macroeconomic policy objectives ?

Answer 1

steady rates of economic growth (2-3% in UK)
price stability and stable rates of inflation (2% in UK)
low unemployment
balance of payments equilibrium
reduction in income inequality and improvement in living standards.

Question 2

what are the possible conflicts of economic growth and inflation ?

Answer 2

Question 3

what are the possible conflicts for Full employment and price stability?

Answer 3

Question 4

what are the possible conflicts of Economic growth and the balance of payments ?

Answer 4

Question 5

what are the possible conflicts of economic growth and sustainable development ?

Answer 5

Question 6

what are the consequences of policy conflicts ?

Answer 6

consequences depends on:

• rate of economic growth
• cause of economic growth
• cause of inflation
• degree of spare capacity
• cause of a change on unemployment
• rate of inflation relative to main trading partners
• current account deficit as a % of GDP
• Business and consumer confidence
• what exactly the major macroeconomic objective is

Question 7

how can these macroeconomic conflicts be reconciled ?

Answer 7

expenditure dampening policies- using tightening Monetary policy or fiscal policy measures help reduce economic growth. takes heat out of economy, dampening inflationary pressure.

expenditure switching policies- seek to persuade households to switch consumption from imports to domestic goods. subsidies given to domestic firms to reduce cost of production, resulting in lower prices for consumers.

Supply-side policies- offer long term solutions to stimulate non-inflationary economic growth. by promoting growth on supply-side of economy, it is possible to increase real GDP and reduce unemployment without the trade-off with rates of inflation