Macroeconomic Objectives: Conflicts & Changes (AQA A Level Economics)

Economic growth and inflation 

• Increasing economic growth causes the economy to move closer to full employment

• Prices for remaining resources are bid up, leading to inflation, which may outpace the target inflation rate of 2%

Economic growth and environmental sustainability

• Economic growth often increases pollution, negative externalities, and the depletion of non-renewable resources

• The higher the growth, the faster the depletion

Economic growth & inequality

• During periods of high economic growth, the profits the owners of the factors of production receive are disproportionate to any increase in workers' wages leading to greater inequality

Economic growth and a  balanced budget

• Economic growth driven by expansionary fiscal policy often requires a budget deficit

Economic growth and balancing the current account

• Economic growth usually leads to higher incomes which leads to an increase in imports by households thereby worsening the current account balance

Low unemployment and low inflation

• The closer an economy moves to full employment the less workers will be available for hire and wage inflation will help increase overall inflation

1940’s to 1970’s

• Keynesian economics dominated this time period

• Importance was placed on achieving economic growth and full employment 

1980’s

• The focus shifted to more free market economics (less government intervention)

  • During this time period, the UK suffered from high levels of inflation 

1990s

• Controlling inflation continued to be an important objective in the UK

2008–2012

• This was a period of economic recession

• Economic growth and employment required policies to stimulate demand