conflicts between objectives Flashcards
what are the 7 macro objective?
- inflation rate of 2% ± 1%
- economic growth
- full emplument
- current account balance equilibrium
- balanced budget deficit
- reduce income inequality
- enviromental sustainability
conflict between economic growth and the enviroment (chains of analsysis)
- economic growth= higher incomes and living standards, increased disposable income ledas to icreased purchase of goods and services, production of which will generate waste contributing to landfills as well as pollution
- (increased infrastructure spendning) economic growth tends to lead to expansion of industries such as manufacturing, construction and mining, typically enrgy intensive requiring large amounts of power, drawn from power plants which will increase power generation by buring more fossil fuels, releasing more CO2, more air pollution and climate change
conflict between economic growth and enviromental sustainabiity (evaluation)
does not conflict
* economci growth enables companies to make profit. investing in technological advancement, which can lead to the development of cleaner and more efficient technologies. Innovations such as renewable energy sources (solar, wind, hydro), energy-efficient appliances, electric vehicles, and waste reduction technologies can significantly reduce environmental impact. As economies grow, they can invest in and adopt these technologies more widely.
- economic growthleads to structural changes: changes economies frm manufacturing to services, Services like finance, education, healthcare, and information technology often require less intensive use of raw materials and energy, less energy consumption and less resource depletion . Service based economies are alot more enviromentally sustainable (india and the UK)
what are some ways the government try to achieve full employment?
- (demand side) expansionary fiscal policy, increased consumption and investment–> more demand for labour
- (supply side ) creation of jobs
conflict between full employment and budget deficit
- epansionary fiscal polciyand government spending on large infrastructure projects will increase the budget deficit, must sell government bonds, increase in government debts
conflict between full emplyment and budget deficit (evaluation)
- (long run) at full employment less people claiming benefits, less government spendning
- (long run) more income and corporation tax, more tax revenue
conflict between unemployment and inflation
- when unemployment is lower, firms have to fight over the few remaining unemployed people if they want to hire someone new. This means that the remaining unemployed people have lots of bargaining power which can be used to increase wages
- increase in costs of production, SRAS shifts to the right
- increase in prices, increase in price level (inflation)
what is the phillips curve ?
shows the trade off between inflation and unemployment
phillips curve evaluation (conflict between unemployment and inflation)
However, some economists argue that the philips curve has flattened in the recent years. This is becuase of adaptive expectations, in 1988 the UK established an independant central bank to control inflation. Since then inflation has remained low an steady - mostly between 0 & 3%.
Consumers and producers expect inflation to be low, beacuse it has been for so long. So as everyone plans for it be low, it stays low
which objectives conflict with economic growth?
- higher inflation
- increasing inequality
- widening current account deficit
- full employment
- enviromental sustainability
what is the conflict between supply side polcies and fiscal polcies ?
in order to fund spply side policies, contractionary fiscal policy is required
* in the short term, higher taxes and less spending, decrease in consumption and AD, reducing economic growth
what is the conflict between monetary and fiscal policy?
expansionary fiscal policy leads to inflation which then requires contractionary monetary policy, working against. Monetary policy holds back economic growth limiting the effectivness of fiscal policy in boosting economic growth
what has been the result on the economy from the 2008 response?
(high debt and low intrest rates )
leading to policy paralysis : cannot implement any other polciies if a similar thing happens in the future
Explain the conflict between supply side and fiscal polcies:
The aim of supply-side policies is to boost economic growth. One example of a policy that aims to do that is the construction of the UK’s HS2 rail link. However, projects such as this are expensive. For instance, HS2 was estimated to cost between $£50 - £80$ billion, and is likely to exceed that estimate. In order to pay for these projects, governments have to raise money through contractionary fiscal policy. So, taxes rise and government spending in other areas falls. This means that AD (C + I + G + (X-M) ) will not shift outwards as consumption in the economy will not grow rapidly in the short term. So, there is a clear policy conflict where fiscal policy prevents supply-side policy from achieving its aims in the short term.
Explain how the use of intervetionst supply side policies may constrain Aggregate supply
