IBEconomicsSLRevision Notes3. Macroeconomics3.3 Macroeconomic Objectives3.3.5 Potential Conflicts Between Macroeconomic Objectives

Potential Conflicts Between Macroeconomic Objectives (SL IB Economics)

Revision Note

Steve Vorster

Expertise

Economics & Business Subject Lead

Common Conflicts Between the Macroeconomic Objectives

  • Policy decisions by governments often create trade-offs in the macroeconomic objectives
  • Achieving one objective may come at the cost of worsening progress in another objective

An Explanation of the Common Trade-offs that Exist Between the Macroeconomic Objectives


Trade-off
Explanation

High 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%

High 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 and 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

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

Examiner Tip

If you are asked to explain a particular trade off, make sure you explain all of the steps in the process E.g. if economic growth increases too quickly, there is likely to be demand-pull inflation, which raises the cost of living for the citizens, resulting in them feeling poorer, as the purchasing power of their wage has decreased

Next topic

Did this page help you?

Steve Vorster

Author: Steve Vorster

Expertise: Economics & Business Subject Lead

Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.