2.6.4: Conflicts and trade-offs

Cards (5)

  • When making progress towards one Macroeconomic objective, it often leads to decreased progress in another. This is called a macroeconomic conflict
  • Example of Macroeconomic conflict: Faster growth means higher consumption, which often comes as a result of higher disposable income. As this is greater, consumers are likely to spend more on imports, causing a current account deficit
  • The Phillips curve shows an inverse relationship between inflation and unemployment
  • When unemployment is high, there is spare capacity in the economy, so there is less inflationary pressure
  • When unemployment is low, real wages increase, and spending in the economy increases, causing inflationary pressure