Government Macroeconomic Intervention Flashcards
What is the effect of an appreciation of the NZ$ on exports?
An appreciation makes New Zealand exports more expensive in foreign markets, reducing demand and competitiveness abroad.
Example sentence: If the NZ$ appreciates by 10%, New Zealand exports may become 10% more expensive for foreign buyers.
How does an appreciation of the NZ$ affect imports and inflation?
It makes foreign goods cheaper, increasing demand for imports and helping to reduce inflation due to lower import prices.
No additional information.
What is the impact of an appreciation of the NZ$ on economic growth and the current account deficit?
It reduces export demand, slowing economic growth, and worsens the current account deficit due to higher import demand and reduced exports.
No additional information.
How does a depreciation of the NZ$ affect exports and imports?
A depreciation makes exports cheaper and more attractive abroad, while imports become more expensive, reducing demand for foreign goods.
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What are the potential benefits of a depreciation of the NZ$?
It can boost economic growth by increasing export demand, but may also lead to inflation as import prices rise, pushing up domestic prices.
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What factors limit the effectiveness of currency depreciation?
The elasticity of demand for exports and imports, time lags in demand adjustments, and the reasons for exchange rate changes (e.g., speculative factors) limit its effectiveness.
No additional information.
What is the ‘Infant Industry Argument’ in the context of protectionism?
Protectionism shields emerging industries from foreign competition until they become globally competitive.
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How can protectionist policies contribute to economic diversification?
Tariffs and other measures can support the development of new industries, reducing a country’s reliance on a narrow set of exports.
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What are some benefits of protectionism?
Protectionism can generate government revenue through tariffs, protect jobs in key industries, and promote economic diversification.
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What are the potential costs of protectionism?
It can lead to retaliation from other countries, higher consumer prices, reduced global trade, and inefficiency in protected industries.
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How does high economic growth lead to inflation?
Rapid growth increases aggregate demand faster than aggregate supply, leading firms to raise prices, contributing to inflation.
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What is the conflict between economic growth and the balance of payments?
Consumer-led growth can increase import demand and worsen the current account balance, while export-led growth can boost the economy without harming the balance of payments.
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How does reducing the budget deficit conflict with economic growth?
Deficit reduction often involves higher taxes or lower government spending, which can reduce aggregate demand and slow economic growth.
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What is the trade-off between economic growth and the environment?
Economic growth, particularly in developing economies, can lead to pollution and resource depletion, conflicting with environmental sustainability.
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How can sustainable growth be achieved without harming the environment?
Investing in clean energy technologies like solar panels can support growth while minimizing environmental damage.
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