THE POSSIBILITY OF CONFLICT ARISING, AT LEAST IN THE SHORT RUN, WHEN ATTEMPTING TO ACHIEVE MACROECONOMIC OBJECTIVES

What is a trade off between policy objectives?

The governemnt whats to schieve oen objective, however this may effect the ability to achieve another

What is policy conflict?

Occurs when two policy objectives cannot be achieved at the same time

List the 4 main macroeconomic objectives

• economic growth

• low unemployment

• price stability

• balance of payments

List other non-economic objectives

• environmental stability

• social justice

• public service/social welfare

2 examples of macroeconomic conflicts

• economic growth and low inflation

• low unemployment and low inflation

What does Phillips curve show?

The Phillips Curve shows a trade off between inflation and unemployment

What do the government use to try and achieve the 4 objectives?

The 3 policies

• monetary

• fiscal

• supply side

How is the Misery Index calculated?

Adding together the unemployment rate and the rate of inflation

Examples of conflicting aims? (2)

• unemployment and inflation

• economic growth and inflation

What is the current rate of unemployment for 16 and above?

4.7%

What is the government inflation target and who is this met by?

2% - met by the Bank of England

Example of a chain of reasons for the conflict between unemployment and inflation

1. Increase in employment

2. Increase in disposable income

3. Increase in aggregate demand

4. Increase in demand pull inflation

What does SRAS and LRAS mean?

SRAS - short run aggregate supply

LRAS - long run aggregate supply

What does wholesale mean?

The global price of a commodity

What is the most stable commodity in the world?

Gold

What are the EU planning in doing similar to the US?

Putting tariffs in (tax on imports)

Example of a logical chain of reasoning for the conflict between economic growth and inflation?

1. Economic growth increases

2. Increase in aggregate demand

3. Increase in general price level

4. Increase in demand pull inflation

What are the 2 types of inflation?

1. Demand pull inflation

2. Cost push inflation

What do the UK have a propensity to export and import?

The UK has a propensity to export services and import good

• deficit in goods

• surplus in services

What does an uneven distribution of income mean?

The gap between the richest and the poorest widens

What does the Phillips curve show, as unemployment increases what does this mean?

More people are in jobs - so inflation increases as disposal income increases, so prices increase

What does GPL mean, and what else can it be called?

GPL - general price level

APL - average price level

What does real GDP mean?

Excludes inflation

What is aggregate demand?

The total of all goods and services demanded by consumers in the country

What is aggregate supply?

Total value of all goods and services supplied and produced by businesses in the country

What causes an outward shift?

Consumer demand increases

What was the name of the man who made the diagram about growth and inflation (aggregate demand/supply)?

John Maynard Keynes

What does it mean where the line is vertical?

Businesses are using all their resources to full capacity

What does it mean when the line starts to go upwards?

Mass unemployment

What things affect a businesses short run aggregate supply?

• wages

• utilities

• insurance

• rent

What things could affect long run aggregate supply?

Potential for tech - AI, robots

What things could decrease GPL?

Uses of AI/robots

Once the economy is at full capacity, what happens to price?

Increases

Who made the graph that showed the relationship between growth and inflation?

John Maynard Keynes

When is a good percentage to keep economic growth and inflation at?

2-3%

What occurs during/after the global financial crisis?

Recession

What is a recession?

Where 2 consecutive quarters of the year are in negative GDP (3 months + 3 months)

What are domestic goods?

Goods made and produced in our country

What does an increase in income (economic growth) do to imports?

Imports are in higher demand - leads to balance of payments no longer being balanced

What is the word uses where someone has a tendency to do something?

Propensity

Is the current account in a deficit or surplus if economic growth is positive?

Negative

In many countries, what does a period of fast economic growth result in inequality of what?

Widening of inequality of income and wealth