Year 12 macro

Question 1

What are the main macroeconomic objectives?

Answer 1

• Economic growth (% change in real GDP)
• Price stability (control of cost and price inflation- 2% +/- 1)
• Low and stable unemployment
• Sustainable overseas trade balance in goods and services/ Balance of payments current account in equilibrium
• Inequality
• Environmental needs be met

Question 2

What are some examples of trade-offs between macroeconomic objectives?

Answer 2

• Faster growth can fuel demand-pull inflation and widen a deficit on the current account
• Low unemployment could cause increase in real wages and therefore inflation (cost push)
• Reducing inflation can cause more unemployment