macro objectives : conflicts and changes Flashcards
what can happen when the gov tries to implement one objective?
As the UK government tries to implement one objective, in the short run it can affect its ability to achieve another objective
what are some conflicts that exist between macro objectives?
economic growth and inflation
economic growth and environmental sustainability
economic growth and inequality
economic growth an a balanced budget
economic growth and balancing the current account
low unemployment and low inflation
conflict explaination of : Economic growth and inflation
Increasing economic growth causes the economy to move closer to full employment
Prices for remaining resources are bid up, leading to inflation, which may outpace the target inflation rate of 2%
conflict explanation of : Economic growth and environmental sustainability
Economic growth often increases pollution, negative externalities, and the depletion of non-renewable resources
The higher the growth, the faster the depletion
conflict explanation of: Economic growth & inequality
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
conflict explanation of: Economic growth and a balanced budget
Economic growth driven by expansionary fiscal policy often requires a budget deficit
conflict explanation of: Economic growth and balancing the current account
Economic growth usually leads to higher incomes which leads to an increase in imports by households thereby worsening the current account balance
conflict explanation of: Low unemployment and low inflation
The closer an economy moves to full employment the less workers will be available for hire and wage inflation will help increase overall inflation
EXAM TIP
The material on this page is frequently examined in the Paper 2 structured questions. You will be asked to discuss to what extent rapid economic growth might conflict with at least two other macroeconomic objectives.
Identify two other macroeconomic objectives that are in conflict with economic growth, such as low levels of inflation and environmental sustainability
Explain that if UK government tries to achieve one’s objective, it affects the ability to achieve another macroeconomic objective
Consider that low and stable rates of inflation may have been sacrificed in order to achieve economic growth. Additionally, economic growth contributes to environmental degradation and sustainable development.
What is the priority of macro economic goals determined by ?
determined by the current government
When the government changes, the priority may change
E.g. The current government may prioritise economic growth over inequality in income, whereas a future government may focus more on reducing unemployment
why can the priority of economic goals change over time due to societal changes?
E.g. In the 1950s and 1960’s, many post-war governments focused on improving and delivering public services. However, the current focus is more on cutting public services so as to reduce tax rates in the country
when did the Keynesian theory come about?
came out straight after world war 2 when the Great Depression happened
