2.9 Do macroeconomic policies conflict when they are used together?

Wednesday, May 22, 2013

What students need to learn:

Students should be able to:
Additional Guidance Notes
Conflicts resulting
from the use of policy instruments
Understand that the use of one macroeconomic policy can outweigh the impact of another, for example:
  • conflicts between fiscal and supply-side policies
  • the impact of fiscal policy which might have inflationary effects in the short run but may be deflationary in the long run
  • use of fiscal policy to incorporate environmental goals, for example using ‘green taxes’
  • impact of a change in interest rates on the distribution of income.

Evaluation in this section might include the difficulty in easuring the conflicts in the short and long term, or the importance of the prioritisation of policies.

Students may consider whether policy instruments may affect other variables in the economy, and consider the consequences for aggregate demand and
supply, for example:
  • the interest rate may influence the exchange rate and impact upon competitiveness
  • the level of government spending might affect the amount of money in the economy which may influence the interest rate.
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