Possible conflicts between objectives

Question 1

Why are there possible conflicts between objectives

Answer 1

Near impossible to achieve all their objectives at the same time, especially in the short run

Question 2

How to graphically show conflicts between objectives

Answer 2

A normal AD-AS graph

Question 3

Economic growth vs inflation

Answer 3

AD increases which leads to a higher RNO > higher GDP > higher EG, however, the price level also rises which leads to a rise in the inflation rate so there is a conflict only when economic growth is caused by an increased AD

Question 4

Balance of payments vs inlation

Answer 4

Avoiding a large deficit means that exports rise to improve BOP. Then AD will also rise as NX is a component of AD which will cause demand pull inflation

Question 5

Unemployment vs inflation

Answer 5

If unemployment decreases, the threat of becoming unemployed falls so workers seek greater wage increases. Explained using the Phillips curve (unemployment rate vs wage inflation)

Question 6

Economic growth vs Balance of payments

Answer 6

High consumption > Higher AD > High economic growth, also possibly more spending on imports which makes the current account deficit worse but also leads to EG