2:5:3 Macroeconomic Objectives And Policies - Conflicts And Trade Ofd Between Objectives And Policies

Question 1

What happens to wages when there is a shortage in the labour supply?

Answer 1

Cause wages to increase (wage pressures build up)

Question 2

When there is a labour shortage wages increase, what is the net effect of this on the wider economy?

Answer 2

• As wages go up people start spending more.
• The cost of production increases because labour is a major production cost.
• Inflation occurs

Question 3

What does Low Unemployment or Reduced Spare Capacity lead to?

Answer 3

Higher inflation

Question 4

What is meant by the key term the Phillips Curve?

Answer 4

An observation of a trade-off (when one factor can only improve at the expense of the other) between unemployment and inflation

Question 5

What is meant by the key term Trade-off?

Answer 5

When one factor can only improve at the expense of another

Question 6

What does the short run Phillips Curve show?

Answer 6

The trade-off between unemployment and inflation

Question 7

How is the trade-off between unemployment and inflation measured?

Answer 7

By the rate of change in wages.

Question 8

If the government tries to exploit the trade-off between unemployment and inflation will it work?

Answer 8

Unlikely to, if the government tries to spend its way into reducing unemployment the most likely effect will be inflation to absorb the governments extra spending.

Question 9

Because Increased wages is linked to inflation, what will the effect of this be on employees and firms?

Answer 9

• Workers’ wages are being eroded by inflation

- Firms will not be getting as much profit out of their workers because of inflation.

Question 10

Is an increase in employment likely to last in the long term?

Answer 10

No, because increase in employment will lead to higher wages, which leads to inflation, workers real wages then decrease and firms worker productivity/ profit per worker decreases so they make workers redundant

Question 11

Does economic growth worsen the balance of payments current account?

Answer 11

Yes

Question 12

Why does economic growth worsen the balance of payments current account?

Answer 12

• Economic Growth causes incomes to rise
• consumers are likely to then demand more imports
• Firms incentives to export diminish as it is easier to find customers in the domestic market

Question 13

What are the only exceptions for economic growth worsening the balance of payments current account?

Answer 13

• Export-led Growth

- if the growth is caused by an increases in AS

Question 14

How do increased employment and sustainability conflict?

Answer 14

• If more workers are employed, there is likely to be more congestion on the roads
• Greater carbon & energy usage because of greater manufacturing.
• Additionally worker wages are likely to increase.
• Workers Are then more likely to go abroad which increases carbon emissions

Question 15

Why may Increased Employment and Sustainability NOT conflict?

Answer 15

• Government has a greater scope for taxation, and may implement a green tax, were taxation is specifically used to reduce carbon use.
• Also wether the higher employment is in the service sector because more people work remotely, and can have a negligible affect on the environment

Question 16

Why do Economic Growth in Inequality Conflict?

Answer 16

• Economic Growth causes incomes to rise for those at the top end of the income spectrum
• Causing a widening income inequality

Question 17

Why may Economic Growth and Income Redistribution NOT conflict with each other?9

Answer 17

• People at the high income end of the scale may employ people from lower income groups, increased demand for low skilled workers should eventually lead to increased wages.