Theme 2: Conflict between objectives Flashcards
Why does economic growth conflict with environmental sustainability?
Firms will spend more on infrastructure releasing CO2 into the atmosphere.
Wealth will increase increasing consumption releasing CO2 into the atmosphere.
Why might some people argue that economic growth does not make an economy more harmful to the environment?
Economic growth helps an economy move from being a manufacturing to a service economy. This change means that the economy will be more environmentally sustainable.
Economic growth also means that companies invent solutions to climate change
Why does a balance budget conflict with full employment?
When the government uses fiscal and supply side policy. As governments increase spending and decrease tax rates.
Evaluation: Why does a balance budget conflict with full employment?
In the long run it balances out
Draw a Philips curve explaining the relationship between inflation and unemployment
When unemployment is low, firms compete to hire the few remaining workers, increasing the wage that they are willing to pay. So wages increase, and firms will then increase their prices, so that they can make a profit despite the higher wage costs. And so, as unemployment decreases, the price level increases, which, as we know, is inflation!
What is the evaluation of the Philips curve?
Phillips curve has flattened. Due to adaptive expectations as ever since 1988 when the UK central bank was in control of inflation everyone expects inflation to stay low so plan for small increase even when unemployment is very low.
What are the 3 key steps to writing an evaluation paragraph?
State evaluation
Evidence and explain.
Link to questin
What was the inflation rate in 1975?
24%
How will HS2 boost economic growth?
By shifting AD outward in the short run and shifting LRAS outwards.
Why do supply side policies and fiscal policies contradict each other?
Contractionary fiscal policy is required to fund supply side policies. And higher taxes and lower government spending can prevent supply side policies from being effective in the long run.
Why do fiscal policy and monetary policy conflict?
- Expansionary fiscal policy creates inflationary pressure in the economy.
- Therefore, policy makers respond by using contractionary monetary policy to increase interest rates.
- This holds back economic growth and creates a policy conflict between fiscal and monetary policies.
What is policy paralysis?
After the 2008 financial crisis, debt is high and interest rates are low so countries have very few policies left to combat another recession.
