To combat high unemployment, a government increases national infrastructure spending financed by public borrowing. This policy successfully stimulates aggregate demand, leading to higher economic growth and job creation. However, the resulting rise in consumer spending leads to an increase in imports, causing a widening of the current account deficit, while rising demand pressures lead to a higher rate of inflation.
This outcome is most likely to
represent a purely contractionary fiscal policy stance.
illustrate a clear conflict between macroeconomic policy objectives.
lead to an immediate government budget surplus and a lower national debt.
show that demand-management policies are entirely free of short-run trade-offs.
327 exam-style questions on AQA A Level Economics 2.3 Economic performance, covering 2.3.1 Economic growth and the economic cycle, 2.3.2 Employment and unemployment, 2.3.3 Inflation and deflation, and 2.3.4 Possible conflicts between macroeconomic policy objectives. Each one has a worked solution and a mark scheme showing where the marks go.