Evaluations Flashcards
1
Q
Marshall-Lerner Condition?
A
States that when a currency depreciates, the current account balance will only improve if the sum of the PEDs for exports & imports is greater than 1 (elastic)
2
Q
J-curve?
A
In the short-run, a depreciation of currency will initially lead to a worsening of the current account balance, before it begins to improve. This is due to price inelastic demand in the short-term & price elastic demand in the long term
3
Q
evaluations of tariffs you can show on a tariff diagram?
A
- loss of consumer surplus
- loss of employment overseas / gain employment locally
- tax revenue raised
4
Q
evaluation for the infant industry argument?
A
- protectionism wont last forever:
- country may place tariff or quota and give the firm a timeframe to become efficient enough to compete with countries abroad
- over those years/period they will slowly reduce the tariff/quota and allow more competition to flow into the country
- finally all protectionism is removed and if they did not manage to become efficient they may have to switch industry
5
Q
the multiplier effect?
A
- the extent to which AD shifts out depends on the size of the multiplier.
- if multiplier is high AD will shift out further
- inflationary pressure/ employment/growth rise
EVAL^2: multiplier itself depends on MPC. If MPC is high multiplier will be greater
6
Q
automatic stabilisers?
A
- automatic fiscal changes to the economy that occur when a recession or hysteresis occurs or in a rising boom
- economy could stabilise without govt intervention
7
Q
theory of second best?
A
- we can hope that the unemployed resources will find their second best use
- based on the assumption that entrepreneurs are rational. we assume that the least efficient resources will be unemployed first which minimises the loss of efficiency.
8
Q
evals of privatisation?
A
- good because it creates competition
- bad due to loss of consumer surplus
- bad could be underpriced
9
Q
evaluation of QE?
A
could be inflationary
