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Comment on whether there is a conflict between the policy objectives of reducing unemployment

and reducing inflation

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Final answer:

There is a classic debate between reducing unemployment and reducing inflation, with Keynesians supporting a tradeoff between the two and neoclassical economists arguing such tradeoffs are short-lived. Policymakers are often left to balance these goals without specific legislative guidance.

Step-by-step explanation:

There is indeed a potential conflict between the policy objectives of reducing unemployment and reducing inflation, which is a key topic in economic discussions. According to the Keynesian viewpoint, a Phillips curve illustrates a tradeoff between inflation and unemployment, suggesting that to reduce one, the other may have to increase. For instance, if a government takes actions to lower inflation from 5% to 2%, it may inadvertently cause unemployment to rise from 4% to 7%. Conversely, neoclassical economists argue that there is no long-term tradeoff, as efforts to decrease unemployment will only lead to higher inflation in the future without sustainable employment benefits.

Legislation does not provide clear guidelines on how monetary authorities should prioritize these objectives when they are in conflict, leaving it to the discretion of the policymakers. During periods of economic deviation such as recessions, Keynesians might be more willing to accept higher inflation for lower unemployment, while neoclassical economists would advocate for maintaining low inflation, warning against the potential negative impact of active interventions on the economy's health.

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