AQA A-Level Economics (7136) · The National & International Economy
Specification points
- The main macroeconomic objectives.
- Possible conflicts between objectives.
- Demand-side and supply-side approaches to policy.
Objectives
Governments aim for strong sustainable growth, low and stable inflation (~2%), low unemployment and a satisfactory balance of payments, plus fairer income distribution, environmental protection and sound public finances.
Conflicts between objectives
Objectives often conflict, forcing trade-offs:
- Unemployment vs inflation — cutting unemployment via higher AD can raise inflation (short-run Phillips curve).
- Growth vs inflation — fast demand-led growth can overheat the economy.
- Growth vs the balance of payments — higher incomes raise imports.
- Growth vs the environment — more output can mean more pollution.
- Reducing a deficit vs growth — austerity can slow growth.
Pursuing one objective (e.g. lower unemployment) can worsen another (e.g. inflation or the current account).
Key definitions
| Term | Definition |
|---|---|
| Phillips curve | The short-run inverse relationship between unemployment and inflation. |
| Demand-side policy | Fiscal and monetary policy aimed at AD. |
| Supply-side policy | Measures aimed at raising productive capacity (LRAS). |
Reconciling conflicts
Supply-side policies can ease some conflicts by raising capacity: they can raise growth and cut unemployment *without* inflation, though they are slow and costly. This is why governments combine demand- and supply-side approaches.
Worked example
A government boosts AD to cut unemployment. Jobs rise, but as the economy nears capacity, inflation accelerates and imports rise, worsening the current account — a classic conflict. Long-run supply-side investment in skills could achieve lower unemployment with less inflationary pressure.
Common exam mistakes
- Listing objectives without explaining conflicts.
- Confusing demand-side with supply-side policy.
- Ignoring that supply-side policy can reconcile some conflicts.
Exam technique
Explain a specific conflict with AD/AS or the Phillips curve, then evaluate how a policy mix (demand + supply side) manages the trade-off.
Quick revision
- Objectives: growth, low inflation, low unemployment, balance of payments.
- Conflicts: unemployment vs inflation; growth vs current account/environment.
- Supply-side policy can ease conflicts (slowly).