Macroeconomic Objectives and Policy Conflicts

With the help of a diagram, assess the effectiveness of government policies that might be used to reduce demand-pull inflation.

A country is experiencing stagflation, when there is a high rate of inflation at the same time as a negative output gap.

With the help of a diagram, evaluate the effectiveness of using fiscal policy to solve this problem.

A country is experiencing stagflation, when there is a high rate of inflation at the same time as a negative output gap.

With the help of a diagram, evaluate the effectiveness of using fiscal policy to solve this problem.

Evaluate the effect of a rise in the exchange rate on the achievement of the macroeconomic aims of a country.

Evaluate the effect of a fall in the exchange rate on the achievement of the macroeconomic aims of a country.

In periods of rising and persistent inflation, consumers and workers change their expectations of the future rate of inflation.

Evaluate, with the help of a diagram(s), the consequences of these changes of expectations for fiscal policy.

Central banks can control the money supply. An increase in the money supply will cause inflation, therefore central banks can control inflation.

Evaluate this statement.

Expenditure-reducing policies will reduce a balance of payments deficit but will also cause significant unemployment.

Evaluate this statement.

Evaluate the effectiveness of using monetary policy to reduce the rate of inflation and how this policy may affect a government’s ability to achieve its other macroeconomic aims.

Keynesians argue that increasing budget deficits will solve the problem of unemployment. Monetarists argue that supply side policies are more effective in reducing unemployment.

Consider which view is more likely to be correct.