2.6.4: Conflicts and trade-offs

• 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