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Analyse why focusing on one macroeconomic policy objective may make it more difficult to achieve another.

      

Analyse why focusing on one macroeconomic policy objective may make it more difficult to achieve another.

  

Answers


Lydia
A basic problem of macro-economic management is that policies which are
appropriate for one objective may be detrimental for another.
There are several examples of such conflicts:
• Inflation and unemployment
• This conflict or trade off is represented in the Phillips curve which shows high inflation being associated with low unemployment
• The rationale for this relationship is that low unemployment normally requires high levels of aggregate demand and one side effect of this can be a high rate of inflation
• Balance of payments current account equilibrium and unemployment
• Correcting a current account deficit can often be achieved by deflationary policies which reduce the demand for imports. However reducing aggregate demand can drive the economy into recession and cause unemployment
• Economic growth and infl ation
• Short term spurts of economic growth can be achieved by expansionary fiscal or monetary policies. Unfortunately these expansionary policies may also cause inflation
• There are numerous other examples of policy confl icts involving issues such as protecting the environment or achieving a “fairer” society.
lydiajane74 answered the question on July 4, 2018 at 08:26


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