Macro Policy Conflicts
- Levels: AS, A Level, IB
- Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC
A crucial part of AS analysis and evaluation is to consider the causes of possible conflicts between key macro objectives.
It is rare for a country to achieve all of its main macroeconomic aims at the same time
- Sustainable and balanced economic growth
- Falling unemployment / rising employment rate
- Price stability i.e. Low but positive rate of inflation
- Equilibrium on a country’s external balance of payments
As a result, difficult choices might have to be made about which objectives are to be given greatest priority
The extent of these trade-offs between objectives will vary from one country to another since the needs of different nations will differ according to their stage of economic development
Examples of Possible Macro Policy Conflicts

The Phillips Curve – Unemployment and Inflation
The Phillips Curve shows a trade-off between inflation and unemployment. A demand-side policy to reduce unemployment could conflict with price stability
- As the rate of unemployment falls, labour shortages may cause an increase in wage inflation leading to higher unit labour costs
- When an economy is booming, so does the derived demand for and prices of components and raw materials – this leads to higher costs
- Rising demand and falling unemployment can lead to suppliers raising prices to increase their profit margins

Long run Phillips Curve
- Neo-classical economists believe that in the long output always returns to a long run equilibrium path
- They also argue that an economy will tend to revert to a level of output where unemployment returns to the natural rate of unemployment made up of frictional and structural U.
- The Long Run Phillips Curve is drawn as vertical i.e. it is assumed to be independent of the level of short run demand/output and the general price level

Inward Shift of the Long Run Phillips Curve
Successful supply-side policies help to:
- Improve the occupational mobility of labour force
- Attract more people into an active search for work
- Reduce the problem of occupational immobility
- Lift labour productivity
These policies can lead to a fall in the natural rate of unemployment (frictional + structural unemployment). This causes the long run Phillips Curve to shift to the left

Critical Evaluation on Conflicts between Macro Policies
- Government priorities change: In the 1970s and 1980s inflation was seen as the biggest problem; unemployment was higher than now.
- Objectives depend on a country’s stage of development. Emerging countries might target rapid growth and extreme poverty reduction and be prepared to accept a higher rate of inflation
- Value judgement matter. Consider the debate over fiscal deficit reduction (Keynesians v Fiscal Conservatives); or critics of ultra-low interest rates and their effect on savers
- Some objectives are sub-sets of others – e.g. export led growth improves the trade balance
- Are some of the objectives conflicting in the short run but not in the LR – for example a tax cutting policy designed to attract inward FDI
- External shocks can help relieve conflicts or make them worse
- Nothing in macroeconomics happens in isolation. Most countries are deeply inter-connected.
- A government may satisfice – i.e. be satisfied with reasonable outcomes for each objectives and tolerate some trade-offs
Subscribe to email updates from tutor2u Economics
Join 1000s of fellow Economics teachers and students all getting the tutor2u Economics team's latest resources and support delivered fresh in their inbox every morning.
You can also follow @tutor2uEconomics on Twitter, subscribe to our YouTube channel, or join our popular Facebook Groups.
Job board
Teacher of Economics
Tonbridge School, Tonbridge, Kent
Related Collections
You might also like
From the Blog
More Study notes
-
Designed to support Year 12 students in the first year of taking A Level Economics, our Flying Start Student Workshops focus on the core Year 1 teaching content and aim to build...
-
Our A Level Economics Grade Booster workshops are designed to provide essential revision support to all A Level Economics students as they complete their preparation for the three terminal papers...
Popular Content
-
Edexcel A Level Economics Diagram Practice Book
- SKU: 02-4130-30188-01
-
Printed Edition
-
Student personal license
- £7.95
Added to your Shopping Cart!
Edexcel A Level Economics Diagram Practice Book
- SKU: 02-4130-30188-01
-
Printed Edition
- £7.95
-
AQA A Level Economics Diagram Practice Book
- SKU: 02-4130-30187-01
-
Printed Edition
-
Student personal license
- £7.95
Added to your Shopping Cart!
AQA A Level Economics Diagram Practice Book
- SKU: 02-4130-30187-01
-
Printed Edition
- £7.95
Teaching Vacancies
-
Curriculum Leader for Business Studies 3 days left to apply
Warden Park Secondary Academy, Haywards Heath, West Sussex
-
Teacher of Economics 5 days left to apply
Tonbridge School, Tonbridge, Kent
-
Economics Teacher
Bromley High School, Bromley, Kent
-
Student Revision Workshops Contributor
tutor2u, Home based
- Browse all jobs ›
Advertise your vacancies with tutor2u

Much cheaper & more effective than TES or the Guardian. Reach the audience you really want to apply for your teaching vacancy by posting directly to our website and related social media audiences.