Conflicts between Objectives Flashcards
(17 cards)
What are the 5 conflicts with economic growth
Inflation
Current account equilibrium
Balanced budget
Environmental sustainability
Inequality
How can economic growth cause inequality
Expansionary fiscal policy means reducing taxes
This decreases tax revenue
Decreases government spending so less spending on benefits and for public services (e.g. health and education)
Tax cuts mean that the richest people in the economy will have the higher incomes
How does economic growth harm the current account equilibrium
Attracts foreign investment
Rise in demand for currency
Increases strength
Foreign goods become cheaper and domestic goods are dearer
Import expenditure will increase and export expenditure will decrease
This will lead to a current account deficit
How can economic growth lead to environmental unsustainability
Expansionary fiscal policy
Decreased taxes
Increased wealth
Increased consumption and the production of these products require energy
This requires the burning of fossil fuels which releases CO2
How can supply side policies to increase economic growth affect the environment
Infrastructure spending like building HS2 requires lots of energy
This requires the burning of fossil fuels
What is the evaluation of the conflict between economic growth and environmental sustainability
KUZNETS curve
As economic growth continues and a country gets more developed they will be able to afford renewable sources of energy and electric cars
How can the government achieve full employment with fiscal policy
Expansionary fiscal policy leads to increase in investment and consumption
Increases AD and derived demand for labour
How can the government use supply-side polices to achieve full employment
Big infrastructure spending in the forms of infrastructure projects like HS2 create more construction jobs
What is the AO2 mark for the HS2 railway can help the UK achieve full employment
Created 30,000 jobs
How does economic growth and a balanced budget conflict each other
Expansionary fiscal policy leads to a budget deficit
What are the two evaluations for the conflict between a balanced budget and economic growth
1) In the long run there will be full employment
Less spending on benefits so government spends less
2) Growing economy means increased consumption which increases AD
So the government will be able to increase tax revenues via VAT and corporation tax
Explain the conflict between full employment and inflation
When there is a low supply of workers because of low unemployment workers have bargaining power
They negotiate higher wages
Increases costs so firms will increase price in order to make a profit
What does the Phillip’s curve look like
What is the evaluation of the Phillip’s curve
What is this general phenomena called
Consumers and producers expect low inflation because of the general trend
People plan with this expectation (producers plan for small increases in prices, consumers plan for small increases in wages and price)
Since this is expected people don’t make massive changes the prices or wages
Adaptive expectations
What is the AO2 for the evaluation of the Phillip’s curve
In 1975 to 2019, UK unemployment was 3.9% but between 1975 and 2019 inflation decreased by 22.44%
In 1998 the UK established an independent central bank to control inflation and it has been low and steady since then, between 0 and 3%
Explain the conflict between supply-side policies and fiscal policy
In order to fund supply-side projects it needs high tax revenue
So it needs a contractionary fiscal policy
Explain the conflict between fiscal and monetary policy
Expansionary fiscal policy increases AD and induces demand-pull inflation
Monetary policy aims to contain inflation so there is a conflict
