Macro A2 - Macroeconomic Policies In A Global Context

Question 1

Fiscal policy

Answer 1

The use of taxation and government spending to affect AD

Question 2

Monetary policy

Answer 2

The use of Interest rates, exchange rates and QE to manage the amount of money in an economy

Question 3

Exchange rate policy

Answer 3

The exchange rate policy refers to the manner in which a country manages its currency in respect to foreign currencies and the foreign exchange market.

Question 4

Supply-side policies

Answer 4

The measures governments take to increase the availability or affordability of goods and services, along with generous tax reform, which refers to tax cuts and changes in tax laws that may encourage or discourage productive behaviour

Main sectors:

• immigration ( labour force increase)
• increase productivity
• increase business, business efficiency etc

Question 5

Measures to reduce fiscal defecit / national debt

Answer 5

• reduce government spending (fiscal austerity)
• increase taxation (fiscal surplus)
• economic growth (supply-side policies, loose monetary)

Question 6

Measures to reduce poverty

Answer 6

• Economic Growth
• Increase in Education
• Cash transfers, housing subsidies, food banks
• Quality health care
• Microfinance
• Infrastructure development
• Reducing Inequality
• progressive taxes aimed at the higher incomes
• reduction in the lower tax band / adjust tax bands

Question 7

Measures to reduce inequality

Answer 7

Progressive taxation
Investment into education
minimum wage increase
affordable housing

Question 8

measures to increase international competitiveness

Answer 8

• Investment in education and training
• Research and development
• Infrastructure development
• Competitive tax system

Question 9

What is the use of macroeconomic policies to respond to external shocks to the global economy

Answer 9

• Fiscal policy involves changes in government spending and taxation, which can be used to stimulate economic growth or reduce inflation
• Monetary policy refers to the actions taken by a central bank to control the supply of money in the economy and influence interest rates.

Question 10

How does regulation of transfer pricing control global companies

Answer 10

Transfer pricing regulation is a set of rules used to control the way that multinational corporations (MNCs) price transactions between different units or subsidiaries within the same company.

By regulating transfer pricing, governments aim to prevent MNCs from shifting profits to lower-tax jurisdictions and thereby reducing their tax liabilities in higher-tax countries

Question 11

Limits to a governments ability to control global companies

Answer 11

Competition from other countries: Some global companies may choose to move their operations to countries with more favourable regulations or lower tax rates, which can limit a government’s ability to control them.

Political constraints: Political constraints can also limit a government’s ability to control global companies.

Question 12

How does inaccurate information affects policymakers when applying policies?

Answer 12

policies are often based on data and analysis, and if the information used in this process is incorrect or unreliable, the policies that are developed and implemented may be misguided and ineffective.

For example, if policymakers rely on inaccurate information about the state of the economy, such as incorrect data on inflation or GDP growth, they may make the wrong decisions about the need for fiscal or monetary policy measures.

Question 13

How do risks & uncertainties affects policymakers when applying policies?

Answer 13

Risks and uncertainties can have a major impact on policymakers when they are applying policies. This is because policies often involve making predictions about future events or outcomes, and if these predictions are uncertain or subject to risks, the policies that are developed and implemented may be less effective or even harmful.

Question 14

How does the inability to control external shocks affects policymakers when applying policies?

Answer 14

The inability to control external shocks can have a significant impact on policymakers when they are applying policies. This is because external shocks, such as economic crises, natural disasters, or geopolitical events, can disrupt the economy and society, and can make it more difficult for policymakers to achieve their intended goals.

Question 15

Fiscal austerity includes:

Answer 15

• tight fiscal
• cuts in public sector pay and pensions
• rise in retirement age
• large scale privatisation
• increase in VAT
• deep cuts in public sector employment

Question 16

Arguments in favour of fiscal austerity

Answer 16

• reducing debt in long run intrest of the economy (helps to keep UK taxes lower)
• shrinking state encourages private sector growth
• high opportunity cost form £Billions on debt interest
• cutting deficits increases investor confidence (attracts FDI into the UK)

Question 17

Arguments against fiscal austerity

Answer 17

Reduced economic growth: Fiscal austerity measures often result in reductions in government spending, which can lead to cuts in public services and infrastructure investment

Regressive effects: Fiscal austerity measures can also have regressive effects, as they often involve cuts to public services and benefits that are used disproportionately by low-income households

Adverse impacts on public services: Cutting public spending can have adverse impacts on public services, such as education, health care, and social protection

Question 18

World bank

Answer 18

An international financial institution that provides loads to countries of the world for capital programs

Question 19

Direct controls

Answer 19

• Maximum prices
• Min/max prices
• Quotas
• Controlling foreign policies

Question 20

Measures to control global companies’

Answer 20

• fines for corruption
• joint venture with local company
• joint manufacture

Question 21

Transfer pricing

Answer 21

• a method of pricing goods and services transferred within a multinational / trans-national company in order to reduce tax burdens and maximise profit. E.g. amazon claiming sales are in Luxembourg to avoid tax
• it is to push up profits as they’re minimising the tax burden
• it is tax evasion not avoidance (ethically wrong)

Question 22

Regulation of transfer pricing

Answer 22

• Arms length principle, the headquarters of a multinational Entity (MNE) should be treated as operating as separate entities rather than the inseparable parts of a business. And the transfer price should mimic the market price of the country that they are selling within

Question 23

Limits to government ability to control global companies

Answer 23

• gdp
• revenue
• gifted individuals (smart person you can’t control e.g. Elon musk)
• bribery corruption
• tax avoidance
• power of the firm

Question 24

Problems facing policy makers when applying policies

Answer 24

• Inaccurate information
• risks and uncertainties
• inability to control external shocks