Macro economic conflicts

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  • Created by: alex
  • Created on: 18-03-13 21:11
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  • Macroeconomic objectives
    • Low inflation rate
      • These two conflict because with an increase in GDP comes an increase in inflation
      • There is a trade off between this two. Reffer to the phillips curve, which shows how, as unemployment decreases, inflation increases.
        • EV: Recent  data has proved the Phillips curve may not be valid. Also there may be a point which satisfies both objectives on the curve.
    • Steady economic growth
      • These two conflict because with an increase in GDP comes an increase in inflation
      • An increase in economic growth and personal wealth will cause an  increase in AD which will require an increase in imports, therefore reducing the balance of payments.
        • EV: This may not always occur if the country moves closer to full employment and increases it's PPF although exports will be reduced because local demand is higher.
    • Be green and sustainable
      • Economic growth will cause an increase in pollution and waste due to increased production and transportation. Also putting pressure on finite resources, causing the costs of these to escalate.
        • Steady economic growth
          • An increase in economic growth and personal wealth will cause an  increase in AD which will require an increase in imports, therefore reducing the balance of payments.
            • EV: This may not always occur if the country moves closer to full employment and increases it's PPF although exports will be reduced because local demand is higher.
        • EV: This could be countered by strong regulators of production and recycling etc. Also by using and developing more sustainable resources.
    • Reach Equilibrium in balance of payments
      • Full Employment
        • There is a trade off between this two. Reffer to the phillips curve, which shows how, as unemployment decreases, inflation increases.
          • EV: Recent  data has proved the Phillips curve may not be valid. Also there may be a point which satisfies both objectives on the curve.
      • Eliminating the public defecit
      • Equal distribution of income
        • The increase in economic growth will mean more money for businesses and less for their workers, so the rich get richer and the poor get poorer. They then avoid taxes by putting their money in foreign banks so money leaves the circular flow of income.
          • EV: Government can use tax bands for the rich to redistribute money, which will also provide disincentives for the rich to earn over a certain amount so there is more for their workers.
    • Economic growth will cause an increase in pollution and waste due to increased production and transportation. Also putting pressure on finite resources, causing the costs of these to escalate.
      • EV: This could be countered by strong regulators of production and recycling etc. Also by using and developing more sustainable resources.

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