LS14 Conflicts Between Macro-objectives Flashcards
What are some macroeconomic objectives for the government
- high and sustainable economic growth
- Low unemployment
- Low inflation
- Sustainable current account equilibrium on the balance of payments
- A sustainable fiscal position
- Environmental objectives such as reducing pollution and greenhouse gas emissions
- objectives relating to income and wealth equality
Be able to draw a diagram which can be seen (p43 of the booklet) of a sustainable and successful economy
What does a successful and sustainable economy look like for developed countries?
Figure 1: A Growing Economy with Low Inflation
At point H, the economy is in both short-run and long-run equilibrium, with aggregate demand (AD) equal to both short-run and long-run aggregate supply (SRAS and LRAS). Output (OY1) assumes full employment, despite possible structural unemployment. The economy grows at 2.5% per year, typical for developed countries pre-2007-08 financial crisis.
As AD increases (shift to the right), both SRAS and LRAS also increase. At point J, a new equilibrium is reached with higher output and mild inflation (price level rises from OP1 to OP2) due to AD growing slightly faster than supply. Figure 1 does not address sustainable fiscal or current account equilibrium, nor income and wealth inequality.
State conflicts between inflation and other macro economic objectives
- Inflation being too high, economic growth
State conflicts between economic growth and other macro economic objectives
State conflicts between unemployment and other macro economic objectives
State conflicts between the current account on the balance of payments and other macro economic objectives
State conflicts between the fiscal deficit and other macro economic objectives
State conflicts between inequalities in income and wealth and other macro economic objectives
State conflicts between the environment and other macro economic objectives
Only done up to pt1
