4.5.4 Macroeconomic Policies in a Global Context

Question 1

Austerity?

Answer 1

Economic policy aimed at ↓ gov budget deficit through ↑ gov revenue (by tax ↑ and/or ↓ gov spending)

Basically contractionary fiscal policy

Question 2

How can firms improve the competitiveness of their products?

Answer 2

By investing in new capital equipment to raise productivity

Investing in capital equipment allows firms to enhance their production capabilities.

Question 3

What are some supply-side policies that governments can use to improve international competitiveness?

Answer 3

Measures include:
* Increasing occupational mobility
* Ensuring macroeconomic stability
* Public sector reform to reduce red tape
* Privatisation
* Encouraging immigration
* Promoting competitiveness through competition policy
* Providing incentives for investment such as tax breaks

Question 4

Why may it not be simple for governments to introduce supply-side policies to improve international competitiveness?

Answer 4

• Time lag (e.g. takes long time to plan and build extra schools to improve education and training)
• Some policies may be controversial (e.g. trade union reforms)
• Difficulties in financing these policies

Question 5

Exogenous/External shock?

Answer 5

• An unexpected event beyond the control of the country’s officials that has a large negative impact on the economy

Question 6

Economic benefits of TNCs for LEDCs?

Answer 6

• Help overcome the savings gap as they provide an external source of capital and ↑ employment

Question 7

Economic benefits of TNCs for MEDCs?

Answer 7

• Provides an opportunity to diversify the economy and ↓ unemployment

Question 8

Costs of TNCS?

Answer 8

• ↑ tax avoidance

Question 9

Transfer pricing?

Answer 9

• The price that one division of a firm charges another division for goods and services provided

1. • Firm exports components to subsidiary in diff country, prices them artifically low such that large profit is made in the diff country (usually the country with the lowest corp. tax e.g. Ireland)

Question 10

What are the problems facing policymakers?

Answer 10

• Inaccurate info - collecting economic data can be difficult
• Risks and uncertainties - if full implications are somewhat unknown (e.g. Brexit)
• Inability to control external shocks - unable to predict consequences (e.g. COVID-19)