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ECON2500 > Lecture 5 (MCQ and SAQ) > Flashcards

Lecture 5 (MCQ and SAQ) Flashcards

1
Q

Falling growth rate is due to what type of growth

A

Potential (permanent) growth, not cyclical

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2
Q

If the cause of slowing is potential growth then what type of policies needed?

A

Supply-side

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3
Q

Types of supply side policies

A

Increasing participation

Improving responsiveness in input markets - labour, capital, demand

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4
Q

If the cause of slowing is cyclical growth, then what type of policies needed?

A

Demand-side needed to boost aggregate demand

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5
Q

Types of demand-side policies

A

Increasing fiscal expenditure

Increasing private consumption

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6
Q

Applying stimulus measures in supply-side slowing causes

A

Inflationary pressures on consumer and asset prices

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7
Q

Applying supply-side measures in the case of a cyclical slow down will lead to…

A

Deflation, worsening downturn

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8
Q

What is a simple production function?

A

Y=f (TFP, K, H, L)

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9
Q

In Y=f (TFP, K, H, L) what is TFP, and what happens to it when the economy reaches the technological frontier?

A

Total Factor Productivity, growth slows

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10
Q

In Y=f (TFP, K, H, L) what is L, and what happens to it when the economy reaches the technological frontier?

A

As the economy becomes older, population growth slows (L)

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11
Q

In Y=f (TFP, K, H, L) what is K and H, and what happens to it when the economy reaches the technological frontier?

A

K: physical capital
H: human capital

Slows due to diminishing marginal returns

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12
Q

Opposing views on China’s slowdown (3)

A
  1. Due to slowing growth in demand for exports, arising from GFC
  2. Population ageing
  3. Exhaustion of the capacity to draw upon a large pool of under-utilised labour
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13
Q

What is Situation 1?

A

Strong actual and potential output growth

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14
Q

What is Situation 2?

A

Weak actual output growth, strong potential growth

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15
Q

What is situation 3?

A

Weak actual and potential output growth

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16
Q

What is situation 4?

A

Strong actual output growth, weak potential output growth

17
Q

When was China in situation 1?

A

Up until 2010

18
Q

Factors of situation 1? Labour, H, K etc.

A

Labour relatively abundant
H and K growing rapidly such that diminishing returns to these factors have not yet set in
Favourable demographics- falling dependency ratio
Potential output above 10% actual tracked potential

19
Q

Biggest contribution to growth 1982-2010, situation 1?

A

Capital: 73%
Labour: 7%
Human Captial: 4%

Remainder: TFP 15%

20
Q

Situation 2 is consistent with a…

A

cyclical downturn - cyclical unemployment would tend to rise

21
Q

Chinese periods classed as Situation 2?

A

AFC (1997-2000)

GFC (2008-2009)

22
Q

When has China been in situation 3?

A

Since 2012

23
Q

When has China been in situation 4?

A

Aside from 3 periods of “overshooting” - early 1980s, early 1990s and before GFC
Situation has not arisen in China’s economic growth

24
Q

How would situation 4 occur?

A

Potential growth was not sufficiently high and economic stimulus measures were implemented - instead of growth could cause inflationary pressures

25
Q

Why is economic stimulus unlikely to create strong inflationary pressure?

A
  • there has be deflation in producer prices
  • low consumer price inflation
  • low growth in aggregate demand

Would trigger supply-side expansion, releasing bottlenecks and embracing potential growth

26
Q

As China becomes richer its growth expected to converge to what rate of advanced economies?

A

4%

27
Q

Ways to increase TFP? (1)(3)

generates better outcome than converging to advanced economy growth rate

A
  • increased innovation, arising from:
    • greater private sector activity (less SOEs)
    • stronger competition
    • less red tape
28
Q

Growth is driven by… (3)

A 
Consumption (stable, albeit declining baseline) 
Investment (volatile, declining)
Net Exports (dwindled since 2009)
29
Q

China’s debt has grown substantially as a consequence of…

A

Economic stimulus during and after the GFC

30
Q

Most of China’s debt is held by..

A

Corporations, including SOEs as well as the private sector

31
Q

Of ‘real estate and construction’ and ‘industrial/manufacturing’ which has increased leverage and which has decreased leverage since the GFC?

A

REC: increased
IM: deleveraged

32
Q

China’s corporate sector has successfully managed to deleverage.. Over which 5 year period?

A

2003-08

33
Q

Two key drivers of corporate borrowing in China

A

Internally-funded corporate capital expenditure (reinvested earnings)
Real estate and construction borrowing

34
Q

Deleveraging is easier/harder than in 2003-08 because growth is faster/slower, and debt is at a historical high/low

A

Harder, slower, high

35
Q

China has less/more government and household debt that other countries but less/more corporate debt

(Overall debt in China is similar to other countries/regions)

A

Less, more

ECON2500 (6 decks)

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