Lesson 34-Relationships between objectives and policies

Question 1

What are the six conflicts in the macroeconomic objectives

Answer 1

1.Inflation and unemployment
2. Economic growth and the current account of the BOP
3. Economic growth and income inequalities
4. Economic growth and the environment
5. Economic growth and unemployment
5. Economic growth and inflation

Question 2

Explain the conflict between Inflation and unemployment

Answer 2

During times of low unemployment people will be earning a high disposable income leading to a rise in AD thus causing demand-pull inflation

Question 3

Explain the conflict between economic growth and the current account of the BOP

Answer 3

As an economy grows, and income rise, consumers are likely to demand for more imports, thus the current account of the BOP may move towards a deficit

Question 4

Explain the conflict between economic growth and income inequalities

Answer 4

When an economy grows, incomes are most likely to increase at the top end of the income levels to members of the hierarchy thereby widening the income inequalities.

Question 5

Explain the conflict between economic growth and the environment

Answer 5

Economic growth will mean that firms are producing in a large scale, leading to pollution.

Question 6

Explain the conflict between economic growth and unemployment

Answer 6

If growth is structural, then the outcome may be unemployment for example deindustrialization will increase growth rates when a country moves away from manufacturing to the services sector but this may cause structural unemployment.

Question 7

Explain the conflict between economic growth and inflation

Answer 7

An increase in the level of AD during economic growth can cause demand pull inflation since consumers will have higher disposable incomes.