C40 Possible Macro Economic Objectives and Conflicts

Question 1

What problem is faced when trying to achieve macroeconomic objectives?

Answer 1

Upon trying to achieve one objective, it may become more difficult to achieve another
Short-term policies for achieving one objective may hinder another one in the future
Short-term policies may be used for correcting sudden problems

Question 2

How do changes in AD cause conflicts?

Answer 2

May :
+ output —> economic growth
+ output —> - unemployment
+ price —> less globally competitive –> imbalance of BOP

Question 3

How does a shift of the LRAS allow for all objectives to be achieved?

Answer 3

+ output —> economic growth
+ output —> - unemployment
- Price level —> globally competitive

Question 4

What is the inflation-unemployment conflict?

Answer 4

• unemployment —> + efficiency —> fewer spare workers —> increase inf worker demand —> higher wages —> more cost to firms —> higher prices to maintain profit margins

Question 5

What is the economic growth and environment protection conflict?

Answer 5

Economic growth —> +waste, +use of inite resources, +damge to ecosystems

Question 6

What is the economic growth and inflation problem?

Answer 6

Economic growth —> + demand —> + prices —> inflation
or
Low inflation —> saving —> low economic growth

Question 7

What is the inflation and balance of payments conflict?

Answer 7

low interest rates —> more exports —> surplus or fixing deficit
or
low inflation —> high interest rates —> foreign investment —> high currency value —> more expensive exports

Question 8

What is the economic growth and inequality conflict?

Answer 8

Economic growth —> inequality as not everyone benefits equally

Question 9

How can you fix the economic growth and inequality conflict?

Answer 9

Progressive taxes —> welfare benefits and increase in average wage