Abstract
The theoretical analysis set out in this book indicates that to some extent the main objectives of government stabilisation policy — full employment, a stable price level, a healthy balance of payments and a satisfactory rate of growth — are mutually incompatible, for success in one creates difficulties for others. Full employment, for instance, requires an adequate level of aggregate demand. But when aggregate demand is increased, so spending on imports rises and home-produced goods are diverted from exports to the home market. Thus the balance-of-payments position becomes less favourable. Full employment also means that eventually less efficient labour has to be employed, bottlenecks occur in the supply of certain factors of production, and trade unions are in a stronger position to bargain for wage increases. Thus, on the cost side alone, there are forces which make for a rise in the price level as full employment is approached.
Published Version
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