Evaluate the potential conflicts between the objective of economic growth and two other UK macroeconomic objectives

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Econplusdal UK Economy Stats
Economic growth * 2024 annual economic growth: 1.1% * quarterly economic growth: 0% * annual growth forecast (1%) * output gap: -0.6% * GDP per capita: £36,000 * total GDP: £2.85 trillion * services - 79% * manufacturing - 14% Unemployment * unemployment rate: 4.4% * economic inactivity rate: 21% * employment rate: 75% * consumer confidence:
Tooting TutorsJaisul Naik

Evaluate the potential conflicts between the objective of economic growth and two other UK macroeconomic objectives. (June 2019)

Economic growth is one of the four main macroeconomic objectives. It is when there is an increase in real GDP. The other objectives are...

One possible trade-off caused by higher economic growth is greater inflation.

  • economic growth could be caused by an increase in aggregate demand
  • inflation is when there is an increase in average price level
  • this increases because there is more demand chasing the same number of goods and services
  • this is bad because wages are not increasing at the same rate as the increase in prices
  • therefore cost of living increases
  • disposable incomes will fall if people continue to spend on the same goods and services as before
  • worse living standards
    • DEPENDS ON THE STATE OF THE ECONOMY

Another possible trade-off caused by higher economic growth is a larger current account deficit.

  • A current account deficit is when the value of imports exceeds the value of exports
  • economic growth is usually caused by/ associated with an increase in AD
  • price level increases
  • more jobs/ lower unemployment/ higher wages/ more disposable incomes
    • greater demand for luxury goods e.g. cars, holidays
    • price level is increasing relative to other economies
    • many goods and services now become cheaper to import rather than buy domestically
      • government could have implement supply side policies
      • productive potential of the economy
      • spending more money on education and training
      • makes our goods and services cheaper (lower cost of production)
      • and BETTER QUALITY
      • specialisation

Unemployment related questions

  • structural unemployment
    • industry declined
      • replaced by technology
      • cheaper to import
    • people do not have transferable skills
  • cyclical unemployment
    • caused by a lack of AD in the economy
    • recession

Evaluate the likely impact of high inflation on the UK government’s macroeconomic objectives. (June 2018)

  • economic growth
    • better
  • unemployment
    • better
  • balance of payments
    • worse

Best way to reduce inflation

Trade offs when you try to reduce inflation

  • contractionary demand side policies
  • will cause AD to fall
  • AD = C + I +G + (X-M)
  • lower demand for goods and services
  • firms output falls
  • real gdp falls
  • firms dont need as many staff
  • causes redundancies and higher unemployment
  • negative multiplier
    • evaluation
    • state of the economy
    • subtle changes
    • cost push or demand pull inflation?
  • supply side policies
  • example
  • cause lras to shift right
  • reduce inflation
    • same amount of demand chasing more goods and services
  • and cause an increase in economic growth and also improve the current account deficit
    • better skills
    • lower cost of production
    • lower price levels
    • exports more attractive
    • better quality (specialisation)
      • opportunity cost
      • time lag