There may be conflicts between the governments policy objectives
These are:
- Stable prices
- Low unemployment
- Sustained economic growth Increase in living standards
- Sustainable balance of payments
Low Unemployment and Low Inflation
Low unemployment and Low inflation shown in the Phillips curve. The Phillips curve states an inverse relationship between inflation and unemployment.
However from 1997 onwards the UK have enjoyed low levels of unemployment and inflation
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Healthy Growth and Low Inflation
If the economy grows too quickly than supply cant keep up with the increase in demand and therefore prices will start to rise
To keep inflation low high interest rates are used which decrease levels of investment and consumption and therefore economic growth
There is a level of trend growth where the economy grows but inflation doesn’t occur – this is seen as being 2.5-3.5%
Healthy Growth and Balance of Payments Equilibrium
When the economy grows rapidly consumption tends to be high
UK British consumers tend to prefer goods from abroad therefore imports grow relative to exports
This makes the balance of payments worsen and can cause or increase the deficit
Healthy Growth and the Environment
When the economy grows more rapidly production increases which increases environmental pollution
Some economists argue that as countries become richer they are able to focus more on environmental objectives and use cleaner technologies thereby reducing the environmental impact
Monetarists / Supply Side View
Monetarists argue that the major macroeconomic objectives are compatible in the long run
In the UK from 1997 onwards there has been relatively low unemployment and inflation and sustained economic growth
