4.5.4 Macroeconomic policies in a global context Flashcards
What are the 4 types of policies the Government use
Fiscal Policies
Monetary Policies
Supply-side policy
Exchange rate policies
What are direct controls
any measure of government intervention which is directly aimed at increasing or decreasing some particular group of payments or receipts in the balance of payment
Direct controls include minimum or maximum prices/wages, quotas on imports, limits on currency or regulation e.g. maximum interest rates
What are the 4 way the Government can reduce fiscal and national debts
Austerity
Demand stimulus (Expansionary fiscal + monetary policy)
Automatic stabilisers
Default on loans
How have the UK Government since 2010 tried to decrease the national debt
Why is it an unfavourable thing to do
What could free-market economists suggest to do instead
Austerity - attempt to decrease Government spending and increase taxes
could limit growth, and reduce living standards and income equality
cutting out waste - i.e become more efficient - however, would these savings be enough to make a difference
How could demand stimulus reduce fiscal + national debts
by high spending - causing economic growth
bringing high tax revenues
more positive fiscal debt and may work in the long run to reduce national debts
How could you rely on automatic stabilisers to reduce fiscal + nation debts
allow the economy to grow so national debt/fiscal deficit will reduce as a percentage of GDP
Approach the US took after the 2008 financial crash - their economy recovered fairly quickly
Defaulting on loans to reduce fiscal + national debt
failure to meet the legal obligations to pay the loan - no more payments
economic cost of this is so large that governments only default if it is the only option. Russia and Argentina have defaulted on their debts in the past
What are the ways the Government can reduce poverty and inequality
Redistribution of income using a progressive tax system - taxation in fiscal policy
Gov welfare spending - fiscal
Improving incentives to work - supply side policies
How can a progressive tax system reduce poverty and inequalities
What is the problem with this idea
Redistribution of income from rich to poor (inheritance is most progressive)
However Laffer curve can show unintended consequences
Not always effective as America has a progressive tax system but has high income inequalities
How can Government welfare spending reduce poverty and inequalities
What is the problem with this
Means tested benefits - targeted at people who need the most help and provide a safety net/minimum standard of living and can improve inequalities
However, can reduce in incentives to work
How can the Government providing goods/services help reduce poverty and ineqalities
Give citizens equal opportunities and access to services they otherwise may not be able to afford
Can give children an equal start in life like education and health care
Not the same in every country
How can the Government reduce wage differentials to help reduce poverty and inequalities
Minimum wage can help improve income of the poor
Maximum wage prevent unproportionate executive pay
Antidiscrimination laws
Trade Union friendly legislation
How can the Government improve access to education and training opportunities help reduce poverty and inequalities
Will prevent children from poorer backgrounds achieving less - causing a reduction in earning potential
Like pupil premium schemes, easier access to unis
Help prevent structural unemployment
How can price control on essentials (max price) by the Government to reduce poverty and inequalities
What is the problem with this
housing, bus fares, food items
Increase spending power of the poor and in turn real incomes
However: can cause excess supply and possible back markets
How may free market economist argue against Government intervention for Poverty and Inequalities
Trickle down concept
Increasing the income of the rich will lead to an increase in income of the poor
E.g. rich can increase amount of jobs
Higher inequality can be an incentive to work