CONFLICTS BETWEEN GOVERNMENT AIMS
- Unemployment and inflation
- Inflation and economic growth
- Balance of payments and economic growth
Possible conflicts between macro objectives
- It is rare for a country to achieve all of its main objectives at the same time
- Frequently conflicts appear between the different aims and as a result, choices might have to be made about which objectives are to be given greatest priority.
- This will vary from one country to another since the needs of different nations will differ according to their stage of economic development.
- Inflation and unemployment: Falling unemployment might create demand-pull and cost-push inflationary pressures leading to a fall in the value of money
- Economic growth and environmental sustainability: Rapid economic growth and development frequently puts extra pressure on scarce environmental resources threatening the sustainability of living standards in the future
- Economic growth and inflation – an overheating economy may suffer accelerating inflation which then has negative effects on trade performance, business profits and jobs
- Economic growth and the balance of payments: Strong GDP growth fuelled by high levels of consumer demand for goods and services might lead to a worsening of the trade balance. This is particularly true when an economy has a high marginal propensity to import.
