Advantages and disadvantages

Question 1

2 Advantage and disadvantages of economic growth

Answer 1

ADV- better standards of living
-lower unemployment

DIS ADV- inflationary pressures (demand pull)

• severe economic cycles leading to recession
• negative environmental effects

Question 2

2 Advantage and disadvantages of full employment

Answer 2

ADV- higher tax receipts for the government
-less inequality and poverty

DIS ADV- inflationary pressures due to full capacity

• phillips curve inflation
• may be cyclical

Question 3

2 Advantage and disadvantages of rising inflation

Answer 3

ADV- sign that the economy is growing and doing well, keeping spending and confidence high as deflation is bad
-easier to set wages as people will resist wage cuts, so productive workers can see real wages rise whilst unproductive workers can see wage freezes and real wage cuts

DIS ADV-enhances inequality as asset and share prices rise, which are mostly owned by the rich

• people on frozen wages ie public sector see a fall in living standards and real wages
• deflationary monetary policy also may enhance inequality

Question 4

2 Advantage and disadvantages of a flat tax system

Answer 4

ADV- better than a regressive system ie £200 per person because £200 will be a proportionally smaller amount of a high earners income compared to a low earners income
-increases the incentives to earn more and decreases incentives for people of higher earnings to avoid the tax as it is often less than progressive taxes

DIS ADV-setting a fair tax rate to apply to all of society might be difficult ie too high for low earners and too low for high earners to pay enough to the government to provide all public goods and services
-laffer curve- people may evade taxes and leave to other countries if the rate is set too high

Question 5

2 Advantage and disadvantages of fiscal rules

Answer 5

ADV-ensures that budget deficits do not get out of hand and the government is able to pay them back, may encouraged inwards FDI if this is stable
-also increased borrowing and spending can encourage inflation and national debt, which must be paid for in the future

DIS ADV-may be too strict, especially in times of recession where government spending is vital

Question 6

2 Advantage and disadvantages of quantitative easing

Answer 6

ADV- can help inflation not fall below its target by providing finance for the banks to spend by buying government bonds to lower the interest rate

DIS ADV- must make sure there isn’t too much money added to the system, as the fisher equation explains that a higher money supply will mean inflation

Question 7

2 Advantage and disadvantages of multinational corporations

Answer 7

ADV- FDI into developing countries will see more jobs, expertise, training and infrastructural developments for these countries
-increased consumer choice across countries, some countries may get access to better quality goods, increasing living standards

Question 8

2 Advantage and disadvantages of improving terms of trade

Answer 8

ADV- better for balance of payments CA deficits
-selling more high value exports relative to imports means they are able to buy more imports

DIS ADV-