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Can anybody work out this economics IB question?
(a) Explain why a government might find it difficult to maintain a low rate of inflation as the economy approaches full employment. [10 marks]
(b) Evaluate the proposition that the priority in economic management should be the maintenance of low unemployment. [15 marks] (H M2007)
It is from paper 1, economics higher, May 2007. Thanks!
I know the steps I may take, but I would like to have it totally solved so that I can actually know how to do this stuff. Thanks!
1 Antwort
- Anonymvor 9 JahrenBeste Antwort
a. It is because of increasing opportunity cost. When the economy approaches the PPF, the resources are are almost exploited.To produce a good more,it needs to increase more factor prices.The inflation rate will increase.
b. Economics goals are low unemployment rate,high GDP growth rate,and price stability of low inflation. But to achieve one goal,it might have to give up the other. For example, to increase employment or lower unemployment rate,it has to increase money supply,and inflation must rise. Some economists such as Krugman give priority to lower unemployment rate.Because it dealt with life,not just a figure.You might agree with him.