Assess the effect inflation will have on three macro-economic objectives (18)

Firstly, identify three macro-economic objectives 
1. Unemployment at 3%
2. Balance of payments surplus
3. Economic Growth of around 2-3%

Inflation will compromise unemployment initially, as prices rise, more income will have to be spent on the original basket of goods (ceteris paribus), thus disposable income and consumption will fall as a result of simply having less income. This fall in consumption will mean the demand curve shrinks, resulting in less output, growth and subsequently employment.

2. Inflation will compromise a balance of payments surplus, as because our prices are higher due to inflation, they become less attractive to foreign countries, therefore the demand for our exports will decrease. However, this will mean our own goods are cheaper to the domestic market, thus more will be demanded, perhaps negating some of the negative impact of inflation regarding the BOP surplus.

3. Normally, inflation is a symptom of growth. But in this case we're looking at the effect inflation will have on growth. An increase in inflation will  mean that prices are higher for households, resulting in less consumption as mentioned earlier and therefore less growth. However, because consumption is less, this will result in less imports being demanded, which will help the Balance of Payments, which will help growth, as imports and exports are components of Economic growth