Essay Plans Theme 4

Question 1

Globalisation (national economies becoming integrated and interdependent)

Answer 1

Pros:
- lower prices, increased efficiency, large EOS
- benefits of trade
- technology and innovation

Cons:
- growing inequality
- environmental costs
- less cultural diversity

Question 2

Monetary union
E.g. Eurozone

Answer 2

Advantages:
- no fluctuating exchange rates (increased investment, trade)
- easier to compare prices between countries
- increased business confidence

Disadvantages:
- no potential to alter exchange rates (e.g. boost exports)
- lack of monetary policy autonomy (may not suit all countries)

Question 3

Protectionism

Answer 3

Reasons:
- for infant industries (gain Eos)
- protect against dumping (selling goods below Cop)
- protect product standards
- improve current account deficit
-raise gov revenue

Eval:
- tariffs distort market
- tariffs regressive
- tariff production inefficiency

Question 4

Current account deficit policies

Answer 4

1. Expenditure reducing policies (contractionary monetary and fiscal)
   But conflict of objectives
2. Protectionism
   But inflation
3. Weaker exchange rates (by reduce i.r)
   But Marshall Lerner condition
4. Supply side policies to increase international competitiveness (gov spend, low tax, privatisation)
   But takes time

Question 5

Policies to improve international competitiveness

Answer 5

1. Gov spending on infrastructure
   Increase efficiency, reduce cost, improve price competitiveness
2. Tax incentives
   Reduce Corp tax, increase retained profit, increase investment, reduce cost
3. Deregulation
   Reduce cost, productive efficiency, attract FDI
4. Gov spending on education

EVAL:
- opp cost of gov spending
- time lag

Question 6

HDI

Answer 6

Strengths:
- broad with 3 features
- allows progress to be measured over time and between countries
- bodies can focus on those with low development (aid)

Weaknesses:
- doesn’t involve distribution of income
- other factors (crime, corruption, poverty, negative externalitites)
- arbitory weighting (allocation of resources is difficult)

Question 7

Market oriented strategies
- deregulation, privatistaion, smaller state, trade liberalisation, promotion of FDI

Answer 7

Benefits:
- efficient resource allocation (no gov failure)
- incentives for competition and profit max

But:
- less infastructure development
- no public goods and merit goods
- depletion of resources
- income inequality (no benefits, pensions, welfare)

Question 8

Microfinance
(small loans to entrepreneurs to stimulate business activity)

Answer 8

Good:
- fills the savings gap (allows people who usually can’t access finance)
- reduces relative poverty
- finance without huge interest
- empowers women (typically don’t get loan)

But:
- entrepreneurial ventures are not always successful
- loans not big enough to alleviate poverty

Question 9

FDI

Answer 9

Advantages:
- injection (increase employment, growth, improve BoP)
- fills the savings gap
- technological transfer (MNCS invest in r&d a d innovation)

Disadvantages:
- MNCS may invest in labour saving tech
- environmental costs (depletion, pollution, reduce biodiversity)

Question 10

Interventionist strategies
(Import substitution, protectionism, managed exchange rate, increase gov spending)

Answer 10

Benefits:
- infastructure development
- stable macroeconomy
- welfare state and pension provision

Problems:
- increase gov spending (indebtness)
- loss making, x-inefficient

Question 11

Trading blocs

Answer 11

1. Free trade area (FTA)
   free trade within, trade how they want nations outside. E.g. NAFTA
2. customs union
   f
   FTA without freedom to trade outside external barriers. E.g. EU
3. Common Market
   Custom union with free movement of labour
4. Monetary union
   Common Market with same currency, central bank and monetary policy. E.g. euro zone

Question 12

Gains of free trade

Answer 12

1. Comparative advantage
2. Access good that can’t be produced domestically
3. Lower prices
4. Greater consumer choice
5. Economic growth

Question 13

Factors influencing growth and development

Answer 13

1. Savings gap (harrord domar model
2. Infastructure
3. Education and skills
4. Demographic factors
5. Primary product dependency

Question 14

Market oriented strategies

Answer 14

1. Trade liberalisation
2. Promotion of FDI
3. microfinance
4. Privatistaion (reducing debt)

Question 15

Interventionist strategies

Answer 15

1. protectionism
2. Government spending
3. Development of human capital
4. Buffer stock schemes