Conflicts Between Macroeconomic Aims

Policy decisions by governments often create a trade-off or conflict in achieving macroeconomic objectives

Achieving one objective may come at the cost of worsening progress in another objective

Common conflicts include:

• Conflicts in achieving both full employment and stable prices

• Conflicts in achieving both economic growth and environmental sustainability

• Conflicts in achieving both full employment and balance of payments stability

When a country reaches full employment, most people who want a job have one

More people earning wages means total demand for goods and services increases

If total demand grows faster than the economy’s ability to make goods and services, prices may rise (inflation)

Keeping prices stable might mean reducing total demand, which can reduce employment

Economic growth means producing more goods and services over time

This often uses more energy and resources, which can damage the environment

Environmental sustainability means meeting today’s needs without harming the ability of future generations to meet their needs

Growth can sometimes lead to more pollution and waste, making it harder to protect the environment

Balance of payments stability means a country’s imports and exports are fairly even over time

When a country has full employment, people have more income to spend, and some of this is spent on imported goods and services

If imports rise faster than exports, the balance of payments can become unstable