Coursework Example | Topics and Well Written Essays - 1250 words - 3

Coursework Example Equitable distribution of income Protecting their economy’s environment The order of importance of the objectives varies for different economies due to their different governments and institutions. Most economies would consider inflation as the most important objective where as other economies with a more socialist approach would focus on equitable distribution of income and reducing unemployment. One of the conflicts governments might face is the tradeoff between inflation, employment and GDP growth. When unemployment tends to fall in an economic boost and a strong GDP, the economy may face high inflation rates, both demand-pull and cost-push and the power of money to buy also called the purchasing power parity falls. This may actually have counter effect than what it should have, that is, positive, due to a rise in GDP. Any policies that control inflation may also lower the employment rate, thus achieving one objective, but conflicting the other. The economy may also experie nce deflation, which is negative inflation and which again lowers the employment rate, and raises the unemployment rate. Then there is the conflict between the objectives of economic growth and environmental protection. In an effort to shift the production frontier outwards, governments may have to forgo the fact that they are putting pressure on the already scarce resources, and actually may lower the living standards which are objectives in almost all economies and may also deplete the scarce resources in their effort to grow. They may also threaten the sustainability of the environment for generations to come. The third conflict is between economic growth and inflation. Rising demand for goods and services may not only increase the price of output but also the price on inputs such as raw materials, energy prices and wages. And so this would lead to increasing inflation, and in some cases hyperinflation. China and India in 2010 faced this kind of accelerating inflation. Higher rat es of inflation are also detrimental to economic growth since they affect profits, businesses and jobs. Interest rates curb the high rates of inflation and high interest rates actually appreciate the currency and have a negative impact on exports since they become expensive on the global market and their demand falls thus having a negative impact on the growth rate of the economy. The last conflict is between balance of payments and economic growth. A higher GDP is achieved when consumer demand is usually high. And this usually leads to a worsening of the balance of trade especially if the marginal propensity to trade is high. (Mankiw, 2000) Lastly, the betterment of the balance of payment situation can actually boost growth in the economy, especially by exports, but may cause another objective to fail, that is, it might lead to demand pull inflation in certain cases. (Mankiw, 2000) Governments also have direct control over two of the economy’s macroeconomic policies: fiscal and monetary policies. Fiscal policies deal with the economy’s budget and are managed by the Legislative and Executive branches of the government. Monetary policies are conducted by the central bank of the economy or the Federal Reserve. Fiscal policy is a means by which government controls the economy by adjusting its spending and the tax rate. When the