economics Flashcards
examples of national debt effect on economy
national debt is the accumulation of a country’s budget deficits.
One effect of high national debt is higher unemployment.
One example of this was Greece.
However, in many countries where there is a strong culture of job security unemployment may not be affected.
One example of this is Japan who despite having one of the highest national debt-to-GDP ratios in the world, often exceeding 200%, has maintained relatively low unemployment rates (around 2-3% in recent years). largely due to a strong tradition of job security and lifetime employment in many sectors.
Another effect of high national debt is hyperinflation
One example of this is Zimbabwe.
However, sound monetary policies can be used to offset high national debt.
One example of this is the United Kingdom, which has experienced high national debt levels, especially post-World War II and during financial crises but has managed to avoid hyperinflation due to the credibility of its monetary policy, an independent central bank, and a relatively strong economy.
example of tariffs
EU 39.7% tariffs on Chinese titanium oxide- helped domestic titanium oxide producers, but hurt domestic paint producers
examples of factors that lead to an globalisation
globalisation is increased interdependence and international trade.
One factor that can lead to globalisation is specialisation.
One example of this Saudi Arabia and its production of oil.
However, in some countries specialisation does not lead to globalisation.
One example of this is Bhutan who specializes in hydropower production, leveraging its abundant water resources,
however it prioritises Gross National Happiness over economic integration, thus limiting widespread global interactions.
Another factor that can lead to globalisation is trade liberalisation.
One example of this is Germany.
However, in some countries trade liberalisation does not lead to globalisation.
One example of this is Argentina.
examples of devaluation increasing competitiveness
Japan:
weaker yen led to an increased competitiveness in the Japanese automobile industry
Argentina:
peso allowed to float freely which led to devaluation which, whilst initially it made Argentinian exports more competitive, in the long run it caused rampant inflation which increased the price of exports
examples of increased investment in infrastructure increasing FDI
United States -
Infrastructure Investment and Jobs Act
Argentina’s Transport Infrastructure-
has invested in improving its transport infrastructure, However, the country’s volatile economic conditions have limited the potential effectiveness of such infrastructure investments in bringing significant foreign capital. Investors remain cautious due to the risks associated with political and economic instability.
“quantitative easing caused more good than bad”-asses
quantitative easing is a monetary policy used by central banks to stimulate the economy when standard monetary policy tools have become ineffective.
One effect that quantitative easing may have is increasing money supply.
an example of this is when During the global financial crisis, the Federal Reserve initiated several rounds of quantitative easing, which significantly increased the Federal Reserve’s balance sheet, from around $900 billion in pre-crisis 2007 to over $4.5 trillion by the end of 2014.
However, it can also be argued to increase wealth inequality.
for example when the United States used quantitative easing in 2008 the benefits of QE disproportionately favoured wealthy individuals and large corporations while failing to stimulate broad-based economic growth, leading to concerns about long-term economic instability.
another effect that quantitative easing may have is improving economic growth.
an example of this is the Bank of Japan’s engaging in quantitative easing for many years, especially to combat deflation and stimulate economic growth.
However, this can lead to inflation.
an example of this is when Zimbabwe’s government engaged in aggressive money printing in the early 2000s to finance deficits, leading to hyperinflation.
give two supply side policies that could be used to reduce inflation
Supply-side policies are designed to increase the productive capacity of the economy, thereby improving supply and potentially reducing inflationary pressures.
one supply side policy is investment in education.
One example of this happening is Finland which has invested heavily in its education sector, focusing on teacher training and providing access to quality education, the result has been a highly educated populace capable of adapting to changing economic conditions and contributing to a stable economy. By ensuring a steady supply of skilled workers, Finland can better meet the demands of its economy, helping alleviate upward pressure on prices.
However, investment in education could also increase the price of labour.
One example of this happening is in the U.S. which has seen significant increases in educational attainment over the decades. Federal and state investments in public universities and community colleges have helped millions earn degrees, leading to higher wages for graduates in areas such as technology and healthcare.
Another supply side policy is promoting free trade lowering tariffs and trade barriers can increase competition and allow consumers access to cheaper imports, which can help prevent domestic price inflation.
One example of this the European union who after the implementation of trade agreements like the EU’s Common Market, member states reduced tariffs on goods from other member countries, which led to an influx of cheaper imported goods- thus reducing inflation.
However, trade liberalisation can also lead to increased competition from other countries which can lead to increased imports without a corresponding growth in exports, this imbalance can result in a trade deficit often leading to pressure on the local currency and subsequent depreciation.
One example of this happening is when India liberalized its trade in the early 1990s, the increased imports and capital outflows put pressure on the Indian rupee, leading to currency depreciation and faster inflation.
give and explain two causes of disinflation
Disinflation is when the rate of inflation decreases
One cause of disinflation is higher interest rates.
One example of this is the Bank of England’s Response to Inflation Following the COVID-19 pandemic, when the UK experienced rising inflation so, the bank of England began raising interest rates from near-zero levels to roughly 2.5%.
However, this will only affect demand pull inflation.
One example of this is Turkey in 2018 who responded to a steep rise in inflation around 2018,increasing interest rates from around 8% to 24% in a relatively short timeframe, but due to falling lira value, and rising commodity prices the interest rate hikes subdued some consumer spending but failed to fully address the cost-push inflation impacting basic goods and services.
Another cause of disinflation is a contractionary fiscal policy.
One example of this was Thatcher’s policy of monetarism.
However, it is limited to luxury goods.
One example of this is where, monetarism led to essential goods such as food, utilities, and healthcare still being in high demand and as inflation continued to rise, creating a strain on household budgets, Consumers prioritized spending on necessities, which became increasingly costly, while luxury spending fell sharply due to the economic conditions exacerbated by tight monetary settings.
Discuss the likely causes of relative poverty levels in the UK
relative poverty is defined as a condition in which an individual or a group has significantly less access to economic resources, capabilities, or standards of living compared to the average or median standard within a specific society or community.
One example of a policy that could be used to reduce relative poverty is investment in education.
One example of this working is Finland which has invested heavily in its education sector, focusing on teacher training and providing access to quality education, the result has been a highly educated populace capable of adapting to changing economic conditions and contributing to a stable economy. By ensuring a steady supply of skilled workers, Finland can better meet the demands of its economy, helping alleviate upward pressure on prices.
However, investment in education could also increase the price of labour.
One example of this happening is in the U.S. which has seen significant increases in educational attainment over the decades. Federal and state investments in public universities and community colleges have helped millions earn degrees, leading to higher wages for graduates in areas such as technology and healthcare.
Another example of a policy that could be used to reduce relative poverty is investing in healthcare.
One example of this working is Sweden which operates a publicly funded healthcare system, primarily financed through taxes.
However, if healthcare policies are not implemented well then its effects will be limited
One example of this is India which has made substantial investments in healthcare, especially in recent years. However, inequities in access to quality healthcare and poverty alleviation efforts have not led to significant reductions in relative poverty, as economic growth has not been evenly distributed across the population.
