25 mark question Flashcards
microeconomic and macroeconomic effects of policies to stimulate growth and development
macroeconomic:
- cutting interest rate -> hot money flows -> increase value of currency
- shifting out AD
microeconomic:
- increase in wages
- increase in productivity for firms
- cutting interest rates -> reduced unit costs for firms
microeconomic and macroeconomic impact on an economy of changes in the level of investment
microeconomic:
- increased incomes + reduced unemployment
- increased productivity
- increased demand due to increased consumer confidence
- improved quality of life due to technological improvements
macroeconomic:
- shifts in AD - multiplier effect
- shifts in AS - increased spare capacity
- inflation
- balance of payments - effect of inward FDI
microeconomic and macroeconomic influences on international competitiveness
microeconomic:
- productivity
- unit cost
- market structures
- labour market factors -> trade unions/NMW/regulation
macroeconomic:
- trade liberalisation
- inflation
- fiscal policy
- supply side
microeconomic and macroeconomic effects of reduced government expenditure instead of cutting taxes
microeconomic:
- unit cost doesn’t increase
- fall in productivity
macroeconomic:
- deterioration in terms of trade
- fall in inflation
- reduced crowding out
microeconomic and macroeconomic causes of a current account deficit
microeconomic:
- low productivity
- high NMW
- strong trade union
- resource depletion ( dutch disease )
macroeconomic:
- high economic growth -> high income -> high imports
- strong exchange rate
- high relative inflation
- poor investment - outdated tech - high export costs
- loss of competitive advantage ( deindustrialisation )
microeconomic and macroeconomic reasons for protectionism
microeconomic:
- increased revenue
- protect workers
- protect against dumping
- protect standards
macroeconomic:
- protect infant industries - diversification
- protect against unemployment
- tariff revenue
- solve trade deficit
microeconomic and macroeconomic effects of protectionism
microeconomic:
- higher prices -> reduced consumer surplus
- increased domestic producer revenue
- reduced allocative efficiency - production moves from a country with comparative advantage
macroeconomic:
- increased government revenue
- protection of infant industries
- long run reduction in unemployment
- inflation - increased import prices -> increased unit costs -> increased price level
- current account ( ceteris paribus )
- increased growth
- reduced unemployment
microeconomic and macroeconomic effects of depreciation in the exchange rate
microeconomic:
- higher prices
- increased cost of production
- increased debt service costs - debts held in foreign currencies become far more expensive
macroeconomic:
- improved current account
- increase in growth - AD shifts out
- reduced unemployment
- inflation
- increased FDI
microeconomic and macroeconomic barriers to development
microeconomic:
- low productivity
- poor education/health/infrastructure
- volatile commodity prices
macroeconomic:
- corrupt government
- low savings and investment - harrod-domar
microeconomic and macroeconomic influences on international competitiveness
microeconomic:
- productivity
- unit costs - wages
- regulations
- competition
- dynamic efficiency/investment/R&D
macroeconomic:
- protectionism
- exchange rate
- tax rates
- relative inflation
- infrastructure
microeconomic and macroeconomic effects of a minimum wage
microeconomic:
- increased unit cost
- reduce income inequality
macroeconomic:
- real wage unemployment / workers being replaced by capital
- inflation - cost push
- decrease in competitiveness of exports
- government may see increase in costs if employed many workers on NMW but if not then increased tax revenue from private sector
microeconomic and macroeconomic effects of unemployment
microeconomic:
- social costs - depression/anxiety/crime - increased pressure on services
- increased pool of workers for firms
- worsening of market failures - increased consumption of alcohol
macroeconomic:
- fall in output
- government finances
- hysteresis - long term impact on LRAS
- lower inflation - philips curve
- current account benefits
microeconomic and macroeconomic effects of nationalisation
microeconomic:
- allocative efficiency - solve market failure in the form of monopoly power -> lower prices and higher quantity/choice
- greater economies of scale
- skills/training/productivity
macroeconomic:
- government finances - cost of running - fiscal budget deficit
- employment
- inefficiency and inflation
- lack of dynamic efficiency - LRAS
microeconomic and macroeconomic effects of market based development policies (trade liberalisation/promoting FDI/tax cuts/privatisation/deregulation)
microeconomic:
- increased competition - increased allocative efficiency - increased choice/quality and lower price
- increased dynamic efficiency
- market failure - environmental
macroeconomic:
- growth/incomes/living standards/poverty
- job creation - labour as derived demand
- increased tax revenue
- increased income inequality
microeconomic and macroeconomic effects of market structures
microeconomic:
- allocative efficiency
- productive efficiency
- x-inefficiency
- anti-competitive strategies
- price discrimination
macroeconomic:
- dynamic efficiency - LRAS
- jobs - competitive market - jobs created
- productive efficiency - LRAS
- competitive markets and poverty alleviation
microeconomic and macroeconomic effects of a trade union
microeconomics:
- increased wages and employment
- improved workers rights and protection
- monopsony labour market outcomes
- costs to firms
- wage discrimination
macroeconomic:
- could lead to unemployment
- inflation
- decrease international competitiveness
- reduce FDI
microeconomic and macroeconomic effects of a subsidy
microeconomic:
- reduced price -> increased consumer surplus
- increased quantity and reduced market failure
- producer revenue and inefficiency
- cost to government
macroeconomic:
- protect domestic producers + workers
- inflation
- international competitiveness
- government finances
- FDI
microeconomic and macroeconomic effects of privatisation/deregulation
microeconomic:
- allocative efficiency
- productive efficiency
- x-inefficiency
- dynamic efficiency
- stakeholder impacts
- market failures
macroeconomic:
- productive and dynamic efficiency - LRAS
- unemployment
- infrastructure building - competitiveness and FDI
- government revenue
microeconomic and macroeconomic effects of free trade
microeconomic:
- lower prices -> increased consumer surplus
- quantity and choice
- competition -> static efficiencies
- technology -> lower costs of production
- economies of scale
macroeconomic:
- comparative advantage exploitation
- impacts on current account
- AD/Growth/Unemployment
- inflation
- living standards and poverty
- dynamic efficiency - LRAS
microeconomic and macroeconomic effects of supply side policies
microeconomic:
- increase productivity
- competition benefits (deregulation)
- risk of monopoly power (deregulation)
- market failures -> government spending on the services
macroeconomic:
- increased growth
- lower unemployment
- lower inflation
- improvements in current account
- hit to government finances -> increase budget deficit
microeconomic and macroeconomic effects of economic growth
microeconomic:
- market failures -> environmental (pollution)
- increased profits and dynamic efficiency
macroeconomic:
- income/living standards/poverty
- reduced unemployment
- inflation - demand pull
- worse current account due to increased imports and less competitive exports
- increased government tax revenue
microeconomic and macroeconomic effects of FDI
microeconomic:
- market failures -> environmental (pollution)
- welfare of workers and pay
- dynamic efficiency -> costs/productivity/green production
- competition distortion/addition - foreign firms destroy home firms
macroeconomic:
- higher growth/ lower unemployment/increased living standards
- inflation
- balance of payments - FDI in financial account
- technology diffusion from new firms -> LRAS
- increased government tax revenue
microeconomic and macroeconomic effects of expansionary monetary policy
microeconomic:
- impact on savers - lower interest rates
- higher house prices as interest rates are cut -> cheaper mortgages -> increased demand
- interest rate cuts -> lower firms costs -> increased profitability
- impact on indebted households
macroeconomic:
- increased growth
- reduced unemployment
- inflation - demand pull
- current account - cutting interest -> weaken exchange rate -> improved current account - or increased income -> increased imports -> worsened current account
microeconomic and macroeconomic effects of contractionary monetary policy
microeconomic:
- impact on savers - higher interest rates
- house prices - fall in demand for houses due to increased interest rates
- firms costs and profitability - reduced profitability due to increased costs as increased interest rates
- impact on indebted households
macroeconomic:
- growth
- unemployment
- inflation
- current account
- reducing systemic risk
- reducing chance of bubbles
