4.1.10

Conflicts Between Objectives

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Conflicting Objectives of Governments

Economists do not agree on what is the "best" target for the objectives above.

Illustrative background for Agreement on the "best" targetIllustrative background for Agreement on the "best" target ?? "content

Agreement on the "best" target

  • There is not always agreement on the best target.
    • E.g. Japan’s debt to GDP ratio is over 200%, while the UK’s is around 70%.
  • The macroeconomic objectives are not mutually exclusive.
    • E.g. if unemployment is high, it will have a negative impact on the fiscal deficit objective.
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Inequality vs incentives

  • The government might try reduce unemployment by spending more on training.
    • In the short run, this may increase the fiscal deficit because of increased government spending.
  • The government may try reduce inequality by raising taxes on the rich.
    • But this may disincentivise workers.
  • Higher economic growth could lead to pressure on resources, so prices begin to rise too fast. This conflicts with the price stability target.
Illustrative background for Growth vs inequalityIllustrative background for Growth vs inequality ?? "content

Growth vs inequality

  • If economic growth rises too fast it could increase income inequality, particularly if the growth is concentrated in the city.
  • If the economy grows too fast, this could come at the expense of the environment. This lowers medium-term life quality.
    • E.g. China has averaged over 6% growth rates in GDP, but at the expense of also having some of the most polluted cities in the world.
Illustrative background for Short run vs long run conflictsIllustrative background for Short run vs long run conflicts ?? "content

Short run vs long run conflicts

  • Although the environment may worsen in the long run, the economy will have the resources to invest in green technology.
  • As an economy grows, it can develop tax revenue to help reduce poverty in the long-term by investing in education and healthcare.
  • The fiscal deficit may conflict with low unemployment targets in the short run. But as unemployment falls in the long run, the government could collect more tax revenue and this could help the fiscal deficit.

Jump to other topics

1Introduction to Markets

2Market Failure

3The UK Macroeconomy

4The UK Economy - Policies

5Business Behaviour

6Market Structures

7A Global Perspective

8Finance & Inequality

9Examples of Global Policy

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