Trade-offs between macro objectives
Macro objectives trade-offs
- Created by: Aimen Kamran
- Created on: 08-06-13 14:36
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- Trade-offs between macro objectives
- Macro objectives are low inflation, low unemployment, balanced BoP and economic growth also equal dist of income and wealth
- Trade-offs between macro objectives
- Economic growth and inflation
- Inflation and unemployment
- Phillips curve - inverse r/s between rate of inflation and level or % of Un
- Economic growth and BoP
- depends on how growth occurs and of what type it is
- if surplus financed (in boom surplus built up, theoretically) then ok, recovery can also be paid for with surplus
- depends on how growth occurs and of what type it is
- Growth and externalities
- Growth and dist of income and wealth
- Growth could mean that incomes of the richer rise whereas other lower incomes stay the same or fall. This increases relative poverty in the country
- However growth has brought several countries out of poverty e.g. China
- But China has massive inequalities and strcutural Un
- Not a theory of inflation but supports Keynesian ones
- Phillips curve - inverse r/s between rate of inflation and level or % of Un
- Demand pull: falling Un associated with excess demand which pulls UP money wages causing less labor to be hired.
- Not a theory of inflation but supports Keynesian ones
- Not a theory of inflation but supports Keynesian ones
- Cost-push: falling Un means TU power increases so they push for higher wages
- LRPC shows in LONG RUN these trade-offs aren't possible
- NRU (equilibrium) always exists
- LRPC shows in LONG RUN these trade-offs aren't possible
- Impossible to reduce except at ever-accelerating rate of inflation. This is because Keynesian SRPC ignores expected inflation.
- Long run trade-off still exists
- LRPC shows in LONG RUN these trade-offs aren't possible
- Impossible to reduce except at ever-accelerating rate of inflation. This is because Keynesian SRPC ignores expected inflation.
- Long run trade-off still exists
- High AD can mean more demand-pull inflation if there is no proportionate increase in SRAS
- Economic growth and inflation
- Economic growth and inflation
- In LR this may not happen because nothing is fixed so FoP may increase to cope with increased AD
- High AD can mean more demand-pull inflation if there is no proportionate increase in SRAS
- High AD can mean more demand-pull inflation if there is no proportionate increase in SRAS
- Still possible if country lacks supply side management or FoP
- In LR this may not happen because nothing is fixed so FoP may increase to cope with increased AD
- In LR this may not happen because nothing is fixed so FoP may increase to cope with increased AD
- deficit financed growth could mean sovereign debt problem and trouble in the future (austerity etc)
- depends on how growth occurs and of what type it is
- if surplus financed (in boom surplus built up, theoretically) then ok, recovery can also be paid for with surplus
- depends on how growth occurs and of what type it is
- In practice most countries do not build up huge surpluses during booms (exception: china)
- aggressive growth can harm environment greatly (-ve ext.) in form of pollution or depletion or degradation of resources
- Growth and externalities
- Growth and externalities
- E.g. overfishing, excessive pollution in cities like Mumbai or Cairo and even view obstruction from buildings
- aggressive growth can harm environment greatly (-ve ext.) in form of pollution or depletion or degradation of resources
- aggressive growth can harm environment greatly (-ve ext.) in form of pollution or depletion or degradation of resources
- 'Green' technology as a solution hasn't been very helpful in some areas (hybrid cars too expensive) whereas quite good in others (recycling now common)
- Policies: fiscal, monetary, supply-side
- Macro objectives are low inflation, low unemployment, balanced BoP and economic growth also equal dist of income and wealth
- Macro objectives are low inflation, low unemployment, balanced BoP and economic growth also equal dist of income and wealth
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