Trade-off

There are four main objectives for the government:

• Increasing GDP
• Increasing trade
• Decreasing unemployment
•  Reducing inflation

Unfortunately it is very difficult to achieve them all at the same time. There are many conflicts of policy objectives because they are connected and they influence each other.  The government has to decide what is their aim and what do they want to sacrifice in order develop.

If there is a high level of economic growth in a certain country it is possible that the inflation will raise and consequently cause the unemployment to increase.

The other thing is the impact of the high economic growth on the balance of payments. If people’s living standard increase they will spend more on imports. That could lead to a negative balance of payments.

The same conflict occurs when the government wants to reduce a budget deficit. Ironically, by increasing taxes and spending less the tax revenues could become lower and it would cause just the opposite result.

What I’ve written are not all of the possible problems which may show up. It is important to know that they don’t always occur and it depends on many factors and the government has to decide what is the best way to develop.

That’s what I think.

MANU