Conflicts and Trade-Offs Flashcards
(15 cards)
What are the 5 possible conflicts of economic growth?
Economic Growth vs Inflation
Economic growth vs Current Account
Budget Deficit vs Economic Growth
Economic Growth vs Environment
Economic Growth vs Inequality
What is the conflict between unemployment and inflation?
Phillip’s Curve
A demand side policy used to reduce unemployment could compromise price stability
What is the conflict between economic growth and inflation?
An overheating economy with excess AD can see demand-pull inflation
What is the conflict between economic growth and the current account?
A consumer boom may cause the trade deficit to rise as demand for and spending on imports grows faster than income from exports
What is the conflict between environment and economic growth?
Rapid growth may lead to increased pollution, waste, and long-term damage to stock of natural resources
What is the conflict between economic growth and the budget deficit?
Growth by government spending widens a government deficit
Austerity measures hinder economic growth
What is the conflict between economic growth and inequality?
The benefits economic growth is not evenly distribution
Why does inflation decrease when unemployment increases?
Unemployment increases
Excess supply of labour
Workers are willing to work for less
Relieves wage pressures
Reduce wages inflation
Why does inflation increase when unemployment decreases?
Unemployment decreases
Shortage of labour
Firms need to offer more retain labour
Increases pressure on wages
Cost-push and demand-pull inflation
Why there may not be a conflict between unemployment and inflation?
Supply-side policies could be the cause of economic growth as they reduce structural unemployment and not increase wages
Why is there a conflict between the environment and competitiveness?
Green taxes, pollution permits, minimum pricing
These policies compromise competitiveness due to greater cost or production
Why do progressive taxes conflict inflation?
Progressive taxes on high income earners to reduce inequality leads to inflation
Why do direct taxes conflict inflation?
Greater direct taxes reduces the supply of labour as they have less incentives to work due to lower wages
Why do corporate taxes conflict inflation?
Corporate taxes reduce retained profit, so there is less money to invest in capital, reducing supply and causing inflation
What is the conflict between fiscal and monetary policy?
Expansionary fiscal policies cause budget deficits so governments need to borrow
This increases demand for funds, so interest rates rise
This affects monetary policy and inflation
