2.6.4 Conflicts + trade offs between policies + objectives

• Economic growth vs inflation

  Inflationary pressures on the average price level
• Positive output gap and AD increases faster than AS

  Economic growth is likely to experience inflationary pressures
• Economic growth


  Worsening of the current account deficit
• Export-led growth


  Country can run a current account surplus and have high levels of economic growth
• Reducing a budget deficit

  Fall in AD and less economic growth
• High rates of economic growth

  High levels of negative externalities such as pollution and usage of non-renewable resources
• Economic growth increases


  Unemployment falls due to more jobs being created
• Unemployment vs inflation

  Wages increase, leading to more consumer spending and an increase in the average price level
• The extent of the trade-off between unemployment and inflation can be limited if supply side policies are used to reduce structural unemployment</b>
• Environment vs taxes

  Green taces could reduce competitiveness of domestic firms
• Taxes to reduce inequality


  Higher rates of inflation
• Expansionary fiscal policies


  Interest rates and the inflation rate rise
• Low interest rates


  Affect the distribution of income, with savers only receiving a small return on their savings