Conflicting Macro Objectives

Question 1

5 conflicts

Answer 1

Inflation and Unemployment
Economic Growth and Environment Protection
Economic Growth and Inflation
Inflation and Balance of payments
Economic Growth and reduction in Wealth Inequality

Question 2

3 Main conficts

Answer 2

Inflation and Unemployment
Inflation and Growth
Inflation and Balance of Payments

Question 3

Inflation and Unemployment conflict explained

Answer 3

When unemplyoment is reduced and the economy begins to appraoch full capacity, there are fewer spare workers, so demand for workers increases, leading to increases in wages and the extra cost results in cost-push inflation

Low unemploymetn may cause consumers to spend more because they feel more confident in their long term job prospects causing demand pull inflation

Question 4

Economic Growth and Inflation conflict explained

Answer 4

Rapidly growing economy can cause large increases in prices, due to increase in demand. This will cause higher levels of dp inflation

Alternatively attempts to keep inflation low can restrict growth. For example high interest rates are kept high to reduce inflation by discouraging spending, resticting economic growth

Question 5

Inflation BOP conflict explained

Answer 5

If inflation is lower than other countries than exports will increase and imports will decrease, creating a surplus on BOP but reduce BOP deficit

Alternatively, low inflation often maintained by high intererst rates. High interest rates encourage foreign investment, increasing demand for for domestic currency, increasing its value, which makes exports more expensive and imports increase, would reduce surplus but make a deficit worse.

Question 6

Tackling unemployment and inflation

Answer 6

Demand-side policies can reduce cyclical unemployment, espcially during recession, eg expansionary fiscal policy like decreasing taxes, or expansionary monetary policy eg. lowering interest rates
However, lack of information cause cause government to overshoot issue (multipliers) leading to inflation or underspend a prolong recession.

Supply side policies - polices to reduce NRU
Investment into training schemese to hep occupational mobility
Labour mobility - ability for workers to switch jobs easily
Increased information about jobs help workers find jobs quicker reducing frictional employment.