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
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
Long run Phillips Curve
Inward Shift of the Long Run Phillips Curve
Successful supply-side policies help to:
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
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