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A look at the possible conflicts between different macro-economic objectives.
The main macro economic objectives are:
- Positive and sustainable economic growth (UK, long run trend rate is around 2.5%)
- Low inflation (UK target 2% +/-1)
- Low unemployment / Full employment (e.g. around 3%)
- Satisfactory current account on balance of payments (i.e. avoid big current account deficit)
- Low government borrowing
- Exchange rate stability
You could also consider:
- Issues of equity
- Environmental factors (long run environmental sustainability)
Economic Growth vs Inflation
The main conflict can come between economic growth and inflation (which leads to a similar conflict between unemployment and inflation). When the economy expands it is more likely that inflationary pressures will increase. Inflation is particularly likely to occur when growth is above the long run trend rate, and AD increases faster than AS.
