16 - Problems, Goals, and Trade-Offs

Abstract

Fiscal, monetary, and international tools are available to meet economic problems. The government can use taxes, transfers, and government spending; wage and price controls; and and other less obvious tools. Open-market transactions are the principal monetary tool. Exchange rate policies and trade restrictions can be used to affect the international sector of the economy. With all of these tools and problems, trade-offs are hard to avoid. In particular, the short-term trade-offs exist between inflation and unemployment and exchange rates and the balance of trade. Other trade-offs persist as well. Giving up a goal can be necessary, but it still remains to choose which goals are important and which can be foregone. This choice is not an easy one. Economic goals are not the only ones that are needed to be considered. Social and environmental concerns are also important, and these problems impose additional economic trade-offs.