Possible Conflicts Between Policy Objectives

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    Possible Conflicts Between Policy Objectives

    • Objectives of low growth and low unemployment can be achieved by expansionary demand-side policy
      • However, this is likely to make it difficult for the government to achieve low inflation and a good balance of payments position
    • Governments and central banks will want to reduce the possibility of such conflicts by using a variety of policy instruments
      • g. a central bank may use the rate of interest to control inflation, and a government may reform the labour market to promote economic growth.
      • The main aim is that AD can be matched by increases in AS, and that the economy works at full capacity.

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