Extract 2 Flashcards
Evaluation of causes of LR growth (4)
(-) Increase in capital: does it replace jobs? More efficient?
(-) Increase in working population: are there vacancies? Productive work force?
(-) Increase in labour productivity: each worker is more valuable/ useful, thus firm may not need to employ as many workers/ not be able to afford as money workers: ^MRP.
(-) Improvements in technology: again, does it replace labour?
Policies to promote economic growth (6)
-Education and training + productivity schemes
-De-regulation and reducing red tape: promotes FDI
-Government incentives to start a business
-Tax reform: encourage people to join labour force
-Increasing market competitiveness and contestability
-Infrastructure development: SR= jobs created by it
LR= e.g lower transport costs
Policies to promote stability (4)
- Fiscal stabilisers (progressive tax, higher welfare)
- Floating exchange rate: works as an auto. stabiliser
- Flexible labour mkts: (another auto.stab.) combats a recession: pay can be reduced instead of unemployment or full-time workers can go part-time/ geo. mobility
- Monetary policy: short term stability can be found by adjusting interest rates
Causes of imbalances on the Balance of Payments
Trade Deficit) (5
- Increasing household incomes causing higher spending on normal good = imports.
- High investment causing capital goods being imported
- A change in comp. adv.: cheaper goods imported not domestically produced
- A high or over-valued exchange rate causing consumers to switch from domestic products to foreign goods.
- Structural weakness in the economy resulting from domestic firms losing competitiveness due to a lack of investment, high labour costs or low productivity.
Policies to improve international competitiveness (4)
-Improving labour productivity
-Increasing competition in product markets: deregulation,
reducing monopoly power, reduce barriers to entry
-Higher levels of investment
-Create a stable macroeconomic environment
Policies to correct imbalances of balance of payments
2
- Expenditure switching policies: increase the price of imports/reduce price of exports in order to reduce the demand for imports and raise the demand for exports to correct a CA deficit.
- Expenditure-reudcing policies: reduce overall level of national income in order to reduce demand for imports and correct a CA deficit.
What are the expenditure-switching policies? (3)
- Lowering in the exchange rate
- tariffs on imports
- subsidising exports
What are the expenditure-reducing policies (3)
- raising the level of taxation
- reducing government expenditure
- raising interest rates
Evaluation of expenditure-switching (5)
- Effectiveness depends on PEDs for M and X: raising the price of imports may have little impact on volume demanded if inelastic PED = worse CA position
- Ineffective if domestic production is inferior (quality etc)
- May only increase value of imports (higher price, little change in demand)
- Such higher prices exacerbate inflation
- Policies take time; J-curve effect
Evaluation of expenditure-reducing (3)
- Large cost to firms/consumers of reducing AD/output
- Should focus on improving exports instead
- Reduce inflation, raise productivity, reduce unit labour costs, and raise investment = better
Effectiveness of policies to improve competitiveness? (2)
- takes time and the increase in flexibility can reduce worker security and lead to lower wages
- with adjusting interest rates: low interest rates may trigger an increase in C causing demand pull inflation which would fuck up competitiveness
Definition of Financial Crowding out
When gov’t borrowing reduces the funds available for private sector investment or raises the cost of investment by raising interest rates
Evaluation of causes of SR growth (3)
(-) Increased wages: how much? MPS, high or low? Are the increased wages distributed evenly?
(-) Increased G: where is it spent? How much? Reach?
(-) Increased confidence: which type of goods are bought as a result? De-merit? Externalities to consumption? Do firms choose to invest because of confidence or choose to save for a recession?
Evaluation of Indicators when constructing policies
- Indicator may only take into account certain aspects (miss others out)
- Weighting of the aspects is generally arbitrary
- Policies that will improve the rating of that country (in terms of the indicator) may not be suitable for country
