Evaluate the possible conflicts between macroeconomic objectives when seeking to control inflation

Edexcel A-Level Economics 25 Mark Essay Plan

In January 2023 the UK prime minister, Rishi Sunak, promised to halve inflation by the end of the year. In July 2023 the Bank of England governor, Andrew Bailey, said: “It is crucial that we… return inflation to its 2% target and provide the environment of price stability in which the UK economy can thrive. This is the best contribution monetary policy can make to the prosperity of the United Kingdom. 

Evaluate the possible conflicts between macroeconomic objectives when seeking to control inflation. (June 2025)

Paragraph 1

• Argument: one possible conflict due to lower inflation is an increase in cyclical unemployment
• Diagram: left shift in AD, negative multiplier
• Evaluation: depends on the size of the multiplier and the state of the economy

Paragraph 2

• Argument: another conflict specifically due to higher interest rates is a weaker current account deficit (it is extremely important to show our understanding here by explaining that higher interest rates are necessary to control inflation and this leads to the worsening of the current account deficit)
• Diagram: exchange rates diagram
• Evaluation: lower inflation will eventually lead to an increase in competitiveness

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