lesson 17 - conflicts between macro objectives

Question 1

What happens when inflation is too high

Answer 1

-one way to reduce inflation is to decrease AD by cutting spending
->recession as rate of economic growth becomes negative

Question 2

what happens when growth is too low

Answer 2

gov tries to increase AD, lowering unemployment, but also causing inflation
-> rise in imports as income increases-> deteriation of the balance of payments
-gov can also raise LRAS growth -> fall in wage rates and inequalities in income

Question 3

what happens when unemployment is too high

Answer 3

-raise AD
->inflation rising,and more spending on imports
-new jobs may be low pay
-more factories-> environmental issues

Question 4

what happens when the current account is very negative

Answer 4

-cut imports by reducing domestic consumption and investment -> unemployment increasing as AD decreases

Question 5

what happens when the fiscal deficit is too high

Answer 5

cut in gov spending, and raise in taxes
->unemployment, and short term economic growth decreases
-> recession

Question 6

what happens when there are inequalities in income and wealth

Answer 6

-gov redistribute income via taxes and gov spending
-> disincentive effect to work ->unemployment

Question 7

what happens when the environmental situation is deteriorating

Answer 7

-policies
-investing into cleaner tech diverts investment -> lower growth

Question 8

draw the short term phillips curve

Answer 8

https://www.google.com/imgres?q=short%20run%20phillips%20curve&imgurl=https%3A%2F%2Fwww.economicshelp.org%2Fwp-content%2Fuploads%2F2013%2F02%2Fphillips-curve.png&imgrefurl=https%3A%2F%2Fwww.economicshelp.org%2Fblog%2F1364%2Feconomics%2Fphillips-curve-explained%2F&docid=0_pGa1ZdEbDTfM&tbnid=BiEpv_PHQwKeWM&vet=12ahUKEwjDmMSMpPCMAxWeS0EAHXXzAGoQM3oECBsQAA..i&w=748&h=499&hcb=2&ved=2ahUKEwjDmMSMpPCMAxWeS0EAHXXzAGoQM3oECBsQAA

-the inverse relationship shown only exists in the shprt term, there is no trade off between inflation and unemployment in the long term

Question 9

explain the long run phillips curve

Answer 9

shows how the economy will always return to original employment

-AD increases, increasing inflation and decreasing unemployment to B
-workers have more power, so push up wages. this causes the whole graph to shift right to C, as SRAS decreases
-this shift returns the employment level to the natural rate of unemployment

https://www.google.com/imgres?q=longrun%20phillips%20curve&imgurl=https%3A%2F%2Fd1vtbil09mxkdf.cloudfront.net%2FGlobal%2520macro-economics%2520graphs%2FPhillips-curve-augmented.webp&imgrefurl=https%3A%2F%2Fwww.economicsonline.co.uk%2Fglobal_economics%2Fphillips_curve-2.html%2F&docid=p_DRv8NClioiJM&tbnid=t477MB0VjLvcEM&vet=12ahUKEwjd46nRpvCMAxW7WUEAHWc8HAMQM3oECGkQAA..i&w=371&h=340&hcb=2&ved=2ahUKEwjd46nRpvCMAxW7WUEAHWc8HAMQM3oECGkQAA