Global economics examples

Question 1

What is the central bank in the Eurozone?

Answer 1

ECB

Question 2

How many countries are in the Eurozone?

Answer 2

19

Question 3

How much was the Eurozone bailout to Greece>

Answer 3

€289bn

Question 4

Evidence for unemployment varying throughout the Eurozone

Answer 4

1) Greece = 18%

2) Denmark = 5%

Question 5

Evidence for national debt varying throughout the Eurozone

Answer 5

1) Greecce = 182%

20 Germany = 61%

Question 6

What was the Exchange Rate Mechanism (ERM)?

Answer 6

A semi-fixed exchange rate regime whereby currency were pegged against the German mark and could fluctuate from it by 6%

Question 7

Why did the UK join the ERM in 1990?

Answer 7

1) By the end of the 1980s inflation was at 6.9% despite a base rate of 15%, which conflicted with the Conservative’s target of zero-inflation by the end of the century
2) ERM would deliver low inflation because it would force the UK to become more efficient rather than relying on depreciating the £

Question 8

How did the ERM affect the UK economy?

Answer 8

1) £6bn was wasted trying to keep the £ in line with the DM
2) Interest rate was 10% in September 1992 in order to preserve the value of the £ despite unemployment of 10% and a recession taking place

Question 9

When did the UK leave the ERM and what effect did this have?

Answer 9

1) 16th September 1992 (‘Black Wednesday’)

2) £ depreciated by 20%

Question 10

How much has the single currency in the Eurozone increased trade between EU members?

Answer 10

5-15%

Question 11

What are the trends in the UK’s BoP?

Answer 11

1) Runs a consistent deficit in goods but surplus in services (but surplus not big enough to offset deficit)
2) Primary income has moved into deficit as their is an increased ownership of UK assets by foreigners

Question 12

What is the UK’s BoP?

Answer 12

Look up closer to exam time

Question 13

What percentage of UK income is generated from services?

Answer 13

80%

Question 14

Why is the UK particularly susceptible to economic growth causing current account deficits?

Answer 14

Has a high MPM because no comparative advantage in the production of manufactured goods

Question 15

Examples of the UK using supply side policies to improve competitiveness

Answer 15

1) Infrastructure investment to improve transport and communication (e.g. 5G, Crossrail, HS2)
2) Cutting corporation tax and offering tax breaks (e.g. Enterprise Investment Scheme and the Venture Capital Trusts offer tax relief for individuals interested in investing in UK small businesses)

Question 16

What is the current rate of corporation tax in the UK?

Answer 16

19%

Question 17

Who are the UK’s top 5 trading partners and % of exports that go to them?

Answer 17

1) US (13.4%)
2) Germany (9.6%)
3) Netherlands (6.8%)
4) France (6.5%)
5) Ireland (5.8%)

Question 18

Examples of the implementation of the Washington Consensus

Answer 18

1) Support of free trade through WTO and NAFTA
2) IMF bailouts on the condition of free market reforms
3) Developing economies focusing on the primary industry as that is where they have comparative advantage

Question 19

Examples of failure of policies inspired by Washington Consensus

Answer 19

1) Macro-economic crisis of Latin America in the 1980s

2) South East Asian crisis in the 1990s

Question 20

Example of protectionist policies helping the development of LICs

Answer 20

The Brazilian government’s suport and development of Embraer (an aerospace conglomerate) helped Brazil become successful in airline manufacturing

Question 21

How has the Chinese approach undermined the Washington Consensus?

Answer 21

1) Chinese firms have invested substantial sums in 125 countries, to the value of $190bn
2) Pay off from investment in infrastructure has shown that an interventionist approach can have a bigger return that leaving it to the free market

Question 22

Example of the failure of privatisation

Answer 22

The privatisation of Bolivia’s water industry in the 1990s, under pressure form the World Bank, has led to water supplies being cut off from the poorest members of society