conflicts between economic objectives

Question 1

growth vs. price stability

Answer 1

↑ in AD → to ↑ growth which will result in high inflation

Question 2

growth vs. inequality

Answer 2

during periods of high economic growth, high skilled labour are able to negotiate high wages → widening inequality

Question 3

growth vs. external stability

Answer 3

• high economic growth is typically caused by govt. expansionary fiscal stimulus → worsened NFD → CA deficit
• high economic growth deteriorates the BOP as imports increase → CAD
  (this is known as the, “BOP constraint”)

Question 4

growth vs. environmental sustainability

Answer 4

extensive mining projects and use of coal-fired power stations will increase AS in the short term → increases economic growth

however, this will lead to deteriorated environmental sustainability

Question 5

unemployment vs. price stability

Answer 5

↓ u/e (below NAIRU) will increase wages → cost-push inflation

Question 6

unemployment vs. inequality

Answer 6

in order to reduce inequality the govt. will increase minimum wage leading to increased unemployment

Question 7

unemployment vs. environmental

Answer 7

regulations and taxes on some industries can reduce production → structural unemployment as firms can not fund wages

Question 7

inequality vs. environment

Answer 7

• environment sustainability will result in cost-push inflation (refer to “environment vs. price stability” flashcard) → worsened inequality as low-income earners have a higher APC

Question 8

external stability vs. environmental

Answer 8

• ↓ natural resource use + regulations on environment will worsen int. comp leading to worsened BOGS
• ↑ govt. spending on environmental sustainability worsens NFD → worsening CA

Question 8

environment vs. price stability

Answer 8

regulations to protect the environment will lead to compliance costs for firms resulting in cost-push inflation