conflicts and trade offs

Question 1

what is a trade off

Answer 1

• Policy decisions by governments often create a trade-off in the macroeconomic objectives
• Achieving one objective may come at the cost of worsening progress in another objective

Question 2

trade off

Economic Growth & Inflation

Answer 2

As economic growth increases, the economy moves closer to full employment, leading to increased demand for resources. Firms compete for these limited resources, causing their prices to be bid up (increased through competition). This can result in inflation rising above the target rate of 2%.

Question 3

Economic Growth & Environmental Sustainability

Answer 3

Economic growth often increases pollution, negative externalities and the depletion of non-renewable resources. The higher the growth, the faster the depletion

Question 4

Economic Growth & Inequality

Answer 4

During periods of high economic growth, the profits the owners of the factors of production receive are disproportionate to any increase in workers’ wages leading to greater inequality

Question 5

Economic Growth & Balanced Budget

Answer 5

Policies that boost economic growth, like expansionary fiscal policy (increasing government spending or cutting taxes), often require a budget deficit since the government spends more than it collects in taxes. This boosts economic activity but worsens the budget balance in the short term. While deficits can stimulate growth, long-term reliance on them may lead to unsustainable debt, affecting economic stability.

Question 6

Economic Growth & Balancing the Current Account

Answer 6

Economic growth usually leads to higher incomes which leads to an increase in imports by households thereby worsening the current account balance

Question 7

Low Unemployment & Low Inflation

Answer 7

The closer an economy moves to full employment the less workers will be available for hire and wage inflation will help increase overall inflation