Conflicts between macroeconomic objectives Flashcards
What is the conflict between price stability and full employment?
Low unemployment means there is a shortage of labour, firms compete more fiercely to hire staff so wages begin to rise, this leads to a higher costs of production for firms and higher disposable income for people who increase their spending hence inflation rises.
What is stagflation?
A simultaneous increase in both unemployment and inflation.
What was the NICE decade and why did it occur?
When low unemployment coexisted with low inflation as oil prices were low and there was an influx of cheap imports from China.
What is the conflict between economic growth and the reduced current account deficit?
As the economy grows, incomes rise and consumer spending grows so the economy sucks in more imports and firms find it easier to sell to domestic markets so exports will decline therefore the CA deficit will worsen
How could economic growth improve the CA deficit in terms of exports?
If the growth is export-led.
How could economic growth improve the CA deficit in terms of AS?
If economic growth is caused by a rightward shift in AS then this will boost the productive capacity so more goods are available for export and fewer goods need to be imported and it will lower the price level so UK goods become more price-competitive.
What is the conflict between economic growth and reduced environmental degradation?
As the economy grows, more output is produced which is associated with more factory emissions and the transportation of goods, people have higher incomes which may involve more use of air travel, land may be used for development of business which would lead to a loss of the forests and carbon sinks and more waste may be generated.
What is the conflict between economic growth and reduced environmental degradation?
As the economy grows, more output is produced which is associated with more factory emissions and the transportation of goods, people have higher incomes which may involve more use of air travel, land may be used for development of business which would lead to a loss of the forests and carbon sinks and more waste may be generated.
How can economic growth not be as bad for the environment in terms of taxes?
It may mean that the government has more scope for taxation which means they have the opportunity to use ‘green’ taxes where taxation is specifically designed to reduce carbon use and they may be used to subsidise more energy efficient production techniques.
What might reduce the impact of the conflict between then environment and economic growth?
The extent of environmental degradation will depend on the sector driving the growth together with the degree of government regulation. In the UK, growth is mostly based on the services sector and so the conflict may not be as severe as in a more manufacturing based economy.
What is an evaluation point about the conflict between economic growth and income redistribution?
People can retrain overtime and find higher-income jobs in the new economy which means that the benefits of economic growth do begin to trickle down to lower-income groups.
How does low inflation improve the CA deficit?
Low inflation relative to other countries will mean that UK goods gain relative price competitiveness therefore exports become more attractive on world markets and imports less attractive.
Why is unemployment a lagging indicator?
A fall in growth may see firms hoarding workers as they represent a substantial investment in human capital and may also have emotional ties with the rest of the workforce - firms may therefore delay making workers redundant for as long as possible.
Why is unemployment a lagging indicator?
A fall in growth may see firms hoarding workers as they represent a substantial investment in human capital and may also have emotional ties with the rest of the workforce - firms may therefore delay making workers redundant for as long as possible. There is also a cost of redundancy and recruitment.
Which objectives are met when AD shifts out?
Economic growth, full employment and a reduced budget deficit.
