Price stability vs. full employment
?
- i.e. the government’s aim to decrease unemployment while maintaining price stability
- When unemployment is decreased, labour becomes scarcer
- → firms offer higher wages
- increases cost of production, causing Cost-push inflation
- can also cause a wage-spiral
- → firms offer higher wages
- This is illustrated by the Phillips curve:
Economic growth vs. external balance (balance of payments constraint)
?
-
Strong economic growth often results in a deterioration in the current account on the balance of payments
- as increased consumption (from eco growth) → increased imports
-
The balance of payments constraint reflects :: the extent to which a high current account deficit limits the speed at which the economy can grow.