Potential conflict between macroeconomic objectives

Low unemployment and low inflation

Demand-pull inflation and economic growth
- caused by increases in AD
- Keynesian model
  - as long as AD increases along the horizontal portion of the AS curve
    - economic growth with no inflation
  - as long as the economy is operating in a deflationary gap
    - there is no conflict between low inflation and economic growth
    - growth occurs with no inflationary pressures
- new classical model
  - economic growth and increase in price level will appear at the same time
- as the economy approaches the potential output
  - inflationary pressures occurs in both model due to resource bottlenecks
  - suggesting a conflict between economic growth and low inflation
- only when LRAS is increasing
  - not only the total demand for real GDP increases, there is a corresponding increase in the economy’s ability to supply that real GDP
Cost-push inflation
- this is caused by decreases in SRAS due to such factors as higher prices of factors of production
- this leads to a higher price level and fall in real GDP, or negative economic growth, also known as stagflation
- therefore, with cost-push inflation it is not possible to have positive economic growth at the same time as the price level is rising

economic growth and environmental sustainability can be pursued together provided governments take appropriate measures to ensure sustainable resource use

it is neither good nor bad for income distribution
depends very much on the kinds of policies countries adopt in order to achieve and handle growth