Wednesday, June 13, 2007

Full Employment and conflict with other objectives

Discuss the extent to which the pursuit of Full Employment may conflict with other objectives. (60)

Full employment means unemployment is very low. There may be some frictional unemployment but generally those looking for work are able to find it. It also means the economy is operating close to, or at Full capacity.

To attain full employment the government could seek to increased Aggregate Demand (AD). This increases Real GDP and reduces cyclical unemployment; however as the economy gets close to full capacity it may cause inflationary pressures; causing inflation to be above target. Furthermore expansionary fiscal policies will cause higher consumer spending and therefore a rise in imports; this causes a current account deficit. This is particularly a problem in the UK, where consumers have a high Marginal propensity to consume imports.

However, it is possible to attain full employment through different approaches. To reduce unemployment, Monetarists argue the government should implement supply side policies. For example, making labour markets more flexible, increasing incentives to work, better education and training e.t.c. These policies can reduce the natural rate of unemployment without causing inflation. In fact some supply side policies which increase productivity may actually help to reduce inflation. Also, if the policies are successful in increasing productivity it will increase the competitiveness of UK exports and therefore improve the balance of payments current account.

Any type of economic growth may conflict with environmental objectives. Causing pollution and contributing to global warming. Arguably environmental objectives are not a high priority for macro economic objective. But, the economic cost of global warming is rising all the time.

However, it is possible to have economic growth and minimise the environmental impact.

related essays:

No comments: