Links between macroeconomic problems
| English | Chinese | Pinyin |
|---|---|---|
| unemployment | 失业 | shī yè |
| inflation | 通货膨胀 | tōng huò péng zhàng |
| Phillips curve | 菲利普斯曲线 | fēi lì pǔ sī qū xiàn |
| current account | 经常账户 | jīng cháng zhàng hù |
| natural rate | 自然失业率 | zì rán shī yè lǜ |
When fixing one problem creates another
- Cut unemployment 失业 by boosting demand — and watch inflation 通货膨胀 rise. The big macro problems are linked, not independent.
- Seeing these links is what separates a sophisticated answer from a naive one.
Macro objective lab
Classify policy examples by the macroeconomic objective they target.
The Phillips curve shows a short-run trade-off between:
Lower unemployment tends to come with higher inflation in the short run.
The curve showing the inflation–unemployment trade-off is named after ______.
The Phillips curve.
The Phillips curve 菲利普斯曲线
- The Phillips curve captures the short-run trade-off between unemployment and inflation: push unemployment down and inflation tends to rise.
Lower unemployment comes at the cost of higher inflation — the short-run Phillips trade-off.
Rapid economic growth can worsen the current account because it:
Higher incomes raise import spending, widening a trade deficit.
Many economists argue the unemployment–inflation trade-off holds only in the short run.
In the long run unemployment tends back to its natural rate regardless of inflation.
Match each pair of linked problems.
Solving one problem often aggravates another.
Other links
- Growth vs inflation: rapid growth can be inflationary if supply can't keep up.
- Growth vs current account 经常账户: a boom sucks in imports, worsening the trade balance.
- Growth vs environment: more output can mean more pollution and resource use.
The long-run twist. Many economists argue the Phillips trade-off holds only in the short run; in the long run, unemployment returns to its natural rate 自然失业率 whatever the inflation rate.
The four macroeconomic objectives
Why it matters
- A policy aimed at one problem (e.g. cutting inflation) has side effects on others (e.g. raising unemployment) — which is why evaluation is essential.
You've got it
- macro problems are linked: the Phillips curve trades unemployment against inflation
- growth conflicts with inflation, the current account, and the environment
- the short-run trade-off may vanish in the long run (natural rate of unemployment)