expansionary fiscal or monetary policy conflict

what does trade off mean

when a gain in one item must be accompanied by a loss in some other item

whats expansionary fiscal/monetary policy

lower tax, low I.R, high gov spending

whats the trade off with economics growth

-shifts AD1 to AD2 and increase real GDP (as C rises) BUT if economy is already at full capacity then then AD shifting causes demand pull inflation

-worsen next exports as C increase so M>X

-if confidence is low then firms won’t invest despite low I.R

whats the trade off with unemployement

-when output rise needs more workers, so D.D increase BUT if economy is already close to full employment can’t hire more workers

-if jobs are given might be low paid bad ones

whats the trade off with low and stable inflation

-when theres low inflation AD increases so leads to demand pull inflation BUT if there is spare capacity firms can increase output (hire more workers, increase output) without raising prices

what’s the trade off with net exports

-with expansionary police that raised inflation, if UK inflation raises higher than other countries then we won’t X as much worsening the CA BUT if the X/M have inelastic demand consumers would buy it regardless

-also if firms invest in R&D then UK could be more competitive in the LR

what’s the trade off with low inequality

-if there’s more jobs then inequality decreases fewer people in poverty BUT the biggest gains to economic growth goes to firms more than workers

-also if firms invest in technology then not as many workers are hired

what’s the trade off with improved fiscal position

-expansionary fiscal policy means high gov spending and low taxes so improves budget deficit BUT when people go work they get more income and C more so more VAT so firms make more profit and fewer people get benefits so the gov spending decreases

what’s the trade off with development

when people get more jobs the GNI increases and gov collects more tax so increase gov spending BUT growth causes environmental problems and improvement only improves if the gov is spending on things that are needed