ILO:

a) Potential conflicts and trade-offs between the macroeconomic objectives

b) Short-run Phillips curve

c) Potential policy conflicts and trade-offs

Conflicting Objectives Theory

Macroeconomic Objectives
Macroeconomic problems and policies
Relevant theory sites:
Tutor2u
Economics online

S/R Phillips curve

Using the resources below and your textbook, make class notes on the S/R Phillips Curve trade off.
The Phillips Curve - 60 Second Adventures in Economics (3/6)
Phillips Curve (Revision Update 2018)
Essay Plan: Unemployment and Macro Trade-Offs
Task:
Explain the relationship between U & inflation.
How could we demonstrate the risk of wage price spiral.
Independent research - extended reading
Picture

Case Studies for Phillips Curve

Assess the risk of conflicting macro objectives as China's economy grows, with reference to the Phillips Curve?
​(15 marks)
Reshaping China's economy: Middle class and economic transformation
China wage growth is soaring | World
Why China can race ahead in the digital economy

Growth & BOP

Using a relevant diagram and the hints below, explain why there can be a conflict between GDP and BOP?
​
Growth = increased avg Y = increase M + domestic C which may reduce X, as firms target domestic consumers
Increased AD = demand pull inflation = reduced IPC = reduced X

Growth = reduced cyclical U = pressure on W = wage price spiral = cost push inflation = reduced IPC = reduced X

TWE - export driven growth / (X-M) % AD / duration of the trade deficit
Using a country of your choice, evaluate how concerned a Government should be with a persistent trade deficit?
A Level Economics Synoptic Essay Guide: Reducing a Trade Deficit

Case Study

Assess why the USA is concerned with its trade deficit with China? (10 marks)
Assess the impact of protectionist measures implemented by the USA on its own economic performance? (12 marks)
Growing US trade deficit with China prompts new tariffs
America v China: why the trade war won't end soon | The Economist
The argument for a U.S. trade deficit with China

Growth & Environment


Growth may damage the environment if it involves increased manufacturing as output would be associated to rising CO2 and the external cost attached to these emissions.

TWE:
> Service sector based growth limit CO2
> Tax receipts invested into renewable energy
> Govt. legislation on environment


Evaluation

What will determine the extent of objective conflict is how the Govt. manage the rate of growth through fiscal, monetary and supply side policy. However these policy measures also exist with conflicts between them. For example supply side policy expenditure requires financing which will impact tax rates which has effects for components of AD and the size of the multiplier. Interest rates used to control demand pull inflation can increase costs to firms which can directly lead to cost push inflation as well as restricting I in the future which could lead to inflationary pressure when AD outstrips AS in the future too.

Policy Conflicts

Examples:

For example, an increase in government spending (part of fiscal policy) is likely to have a direct, positive impact on the supply-side of the economy through improved standards of healthcare or education, or through the impact of changes in taxes and benefits.

However, the increased spending might cause problems in supply in the short run, leading to increased demand pull inflationary pressures in the economy.

Alternatively, increasing interest rates (monetary policy) in order to control inflation is often seen as being damaging to the supply-side of the economy. If higher interest rates reduce investment in the economy, then this may lead to increased cost-push inflationary pressures, while reducing demand-pull inflationary pressures.
What policy conflicts may occur in the following videos:
What Would Negative Interest Rates Mean For Consumers And The Economy?
Is a global debt crisis coming? | CNBC Explains