Download 2.6.4 conflicting policies student version

Students should be able to:
 Evaluate potential policy conflicts and tradeoffs
There are two main policy instruments:
NOTE: transfer payments refer to money moving
from taxpayers to benefit claimants through the
social security system
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Supply side policies are
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Fiscal policies are
Government spending on education affects
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 _____________________________________
 This may mean that the price level will
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So fiscal policy has ___________ effects in the
short term and _____________ in the long run.
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Some government expenditure varies with the
business cycle. These are called automatic
stabilisers. E.g. if the economy is in a recession
then government expenditure will rise and
revenue will fall. This automatically helps to offset
the effect of the recession.
Discretionary policies are therefore when the
government deliberately tries to influence the
economy
The key is whether the economy is at full
employment or not.
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There are often conflicts between
macroeconomic policy objectives
E.g. increasing levels of growth may conflict with
the aim of ____________________ if aggregate
demand outpaces aggregate supply
The pursuit of one objective may mean an
opportunity cost in terms of another
This is referred to as a ____________ where an
increase in one area is traded off for a decrease
in the other
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Interest rates are historically low (0.5%) since
March 2009
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http://www.bbc.co.uk/news/uk-14832742
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Redistribution of income from savers to borrowers
Savers have lost out (£43 billion) – falling real
incomes
Borrowers have gained (£51 billion) – gain in
purchasing power; low interest rates have
increased demand for (and hence price of)
houses (increased wealth effect). Younger people
have lost out
Also affects exporters positively (weak £)
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