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A basic problem of macro-economic management is that policies which are
appropriate for one objective may be detrimental for another.
There are several examples of such conflicts:
• Inflation and unemployment
• This conflict or trade off is represented in the Phillips curve which shows high inflation being associated with low unemployment
• The rationale for this relationship is that low unemployment normally requires high levels of aggregate demand and one side effect of this can be a high rate of inflation
• Balance of payments current account equilibrium and unemployment
• Correcting a current account deficit can often be achieved by deflationary policies which reduce the demand for imports. However reducing aggregate demand can drive the economy into recession and cause unemployment
• Economic growth and infl ation
• Short term spurts of economic growth can be achieved by expansionary fiscal or monetary policies. Unfortunately these expansionary policies may also cause inflation
• There are numerous other examples of policy confl icts involving issues such as protecting the environment or achieving a “fairer” society.
lydiajane74 answered the question on July 4, 2018 at 08:26
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