Macro Application Flashcards
Example of consumer spending increasing AD
Trump’s tax cuts in USA in 2018, increased disposable income and MPC
Example of consumer spending decreasing AD
Covid - forced retail stores to close, fear of losing jobs increased MPS as people wanted more security, contributed to US recession in 2020
Example of investment increased AD
China’s only G20 country with positive economic output in 2020, also future plans (Belt and Road initiative) increased investment in Chinese firms
Example of investment decreasing AD
Brexit deterred investment into UK since 2016 due to uncertainty of future - no-deal Brexit lead to UK trading on WTO’s terms which would increase tariffs so damage GDP
Example of government spending increasing AD
UK ‘T-levels’ started in 2020, spending on training for 16-18 year olds - improve occupational mobility, increase AD and LRAS
Example of government spending decreasing AD
2010, Greece’s public debt to GDP ratio reached 146%, Greece bailed out by eurozone but forced to adapt austerity policy which reduced government spending and therefore AD
Example of BOP deficit reducing improving AD
2020, largest ever free trade agreement signed (RCED) covering 2.2 billion people (countries like China,Japan,Australia) - bloc covered 28% of global exports, better trade in bloc and improved investment boosted AD of bloc countries
Example of BOP deficit worsening reducing AD
Demand for Chinese Yuan since 2020 due to greater investment raising exchange rate so reducing demand for exports
Example of costs of employment increasing effecting SRAS
Airport workers on strike for higher wages during peak times like Christmas, companies forced to pay higher wages as can’t afford to delay flights, increase costs so SRAS shifts left
Example of costs of employment decreasing effecting SRAS
Uk furlough scheme paying 80% of monthly salaries - lower costs for producers as only have to pay 20% of wages so SRAS shifts right
Example of rising costs of materials effecting SRAS
1973 , OPEC declared oil embargo on US due to political issues - rose costs for US business massively as OPEC controlled 75% of global oil supply- costs of production for firms rose massively
Example of decreasing costs of materials effecting SRAS
Issues of climate change, use of more renewable energy (I.e wind/solar), firms less reliant on OPEC for oil as cheaper alternatives - decreases costs of production
Example of increasing costs of production effecting SRAS
European Union aimed to become climate-neutral by 2050, implement tax levied on imports not produced by environmentally friendly methods by 2022 - firms either pay tax or invest in green technology, costs rise anyway so SRAS decreases
Example of technological advances effecting LRAS
2015, China’s ten year plan to become a manufacturing superpower - involved R and D, subsidies in industry (aviation/railway) and technology- improves LRAS
Example of ‘zombie business’ effecting LRAS
2020, Government lowering interest rates making it easier to access loans and furlough schemes - rise in inefficient ‘zombie’ firms who were reliant on government support - lack of productivity so worsened LRAS
Example of changes in education levels and skills effecting LRAS
T-levels - improved human quality, improves LRAS and productive capacity of the economy
Examples of competition policy effecting LRAS
Airline Deregulation Act 1978, allowed more firms to enter market to improved competition and efficiency so LRAS
Example of a cause of technological structural unemployment
Automotive industry - workers replaced by machines able to outperform them at lower costs - also workers lack qualifications or training in other industries
Example of a cause of regional structural unemployment
London service based workers kept jobs, manufacturing workers in the North loses jobs - also links to geographical immobility as poorer infrastructure and investment in the north
Example of seasonal unemployment
Amazon employs many more workers around Christmas to deal with larger demand for goods , then lays them off in January
Example of cyclical unemployment
Covid 19 - worsened cyclical unemployment in the hospitality sector due to lockdown so lack of demand from consumers
Example of demand-pull inflation
Christmas creates seasonal inflation as greater demand for gifts
Example of cost-push inflation recently
USA-China trade war, rising costs of raw materials for US firms as China benefit from EoS so other materials will be more expensive, caused inflation in USA
Example of cost-push inflation in the 1970s
1973 oil embargo
Example of the BoP worsening the current account
2020, WTO allowed EU to impose $4 billion worth of tariffs on US goods as US were unlawfully subsidising Boeing as they were competing in a duopoly against Airbus - these new tariffs worsens US current account deficit as larger import costs
Example of a country controlling a current account surplus
Germany - high levels of innovation and R and D subsidies which lowers prices and boosts exports - Germany also has large amounts of raw materials so there is little demand for imports
Covid-19 impact on interdependence of economies
Less interdependence, so current accounts become less volatile to external economic shocks
What did the 2006 stern report state?
Climate change was costing the world 20% of GDP annually
How did the EU emissions trading scheme cause a clash of policy objectives?
Firms forced to adapt green energy or risk insolvency, rising costs so harms GDP growth
What is stagflation?
High inflation and high unemployment, triggers deep recessions
How did the UK use monetary policy during Brexit?
Interest rates were lowered to 0.25% to prevent a reduction in GDP growth as investment reduced due to uncertainty of UK economy
How did government use monetary policy during Covid?
Interest rates were lowered to cope with a lack of demand and investment in the global economy
Between 2018-2020 how did USA use monetary policy to prevent inflation?
2009-2020 was USA longest ever global economic expansion, interest rates rose to prevent demand pull inflation BUT rates dropped after USA-China trade war
How has the 2008 financial crisis affected how monetary policy is used?
High interest rates are rare to prevent the risk of it happening again
What is Green Quantitive Easing?
Governments only buy bonds off companies that fund environmentally friendly projects, due to climate change crisis
How did the USA use the Lehman brother as an example in the 2008 financial crisis?
US central bank allowed Lehman Brothers to dissolve to prevent the risk of moral hazard causing issues as banks knew they’d be bailed out by the central bank
What are the issues with the independence of central banks?
Covid 19 caused an increase in the use of QE and monetary policies - for example ECB announced a $750 billion public sector purchase programme which German court opposed - shows issues with divided aims
What is an example of flexible form of average inflation targeting, and what is its aims?
2020, FED(US central bank) aimed for more flexible approach on inflation (2% average could be maintained over number of years) - meant lower interest rates and more credit expansion
What is monetary financing + an example?
When central bank buys bonds off government , Covid forced fiscal stimulus which were the central banks were paying for + encouraged reckless spending by the government
Why did Covid lead to a shift from monetary to fiscal policy?
Independence of central banks threatened, liquidity trap, QE impact diminished as it became overused
Example of the UK decreasing tax to boost investment?
2010-2019, corporation tax decreased in the UK by 9% - however had little impact due to Brexit ( 40 overseas investors built in UK by 2013 due to decreased tax, however stopped investment due to Brexit as more uncertainty)
Triple-tax lock meaning
2019, UK government promised not to raise BAT, income tax or national insurance - however Covid May changes this as MPC rose
How did the UK try and improve the economy using fiscal policies during the 2008 financial crisis?
Uk government deployed many fiscal stimulus (I.e cutting VAT) - worsened the budget deficit
Impact of Greek austerity policy between 2010-2012?
Economic growth decreased by 25%, worsened unemployment, spending on training and education reduced by 20% so worsened supply
Example of UK government supply-side policies in 2019?
£400 million spent on education and a pledge to improve teacher salaries to minimum £30,000 a year - motivates teachers so improves education quality
Uk immigration plans in 2020 effect?
Uk plans to only let immigrants with sufficient qualifications gain citizenship - more skilled workforce BUT British citizens less motivated to find work as higher skilled workforce, worsens natural rate of unemployment
Example of UK reduced corporation tax boosting supply?
Jaguar Land Rover built factory in midlands, creates jobs and also reduced deficit as they made tax contributions
Example of infrastructure investment boosting supply?
HS2 railway - £80 billion project joining London, Manchester and Birmingham - improves geographical mobility
Issues with trade unions effecting productivity?
Trade unions make workers less motivated to work on current wages as expect them to earn more - argument productivity between without unions
Issues with UK exchange rate in 2015 whilst still in EU
Pound strengthened against the euro, caused a drop in UK demands from European countries (I.e Oxford instruments to Russia)
Impact of USA dollar strengthening in 2020
USA longest ever economic growth, strong dollar hurt US firms profits as drop in demand for exports
Example of a fixed exchange rate being successful
UAE fixed against the US dollar - reduces volatility of oil prices and attracts investors a lower levels of uncertainty, good for UAE future as oil is finite so need to diversify
Example of hot money being used to devalue currency?
China decreased interest rates - leads to hot money outflows and less demand for Yuan so Yuan can be devalued sl demand for export increases
Impact of Covid on globalisation and trade
Caused shift to more domestic supply chain to avoid countries being effected by economic shocks again like in Covid
Issues with domestic supply chains
Smaller EoS so higher prices and higher risk of natural disasters ruining economy
Impacts on China of growing economy
TNCs shifting production out of China as costs of production rise - creates more unemployment
Issues with use of FDI
Crowds out domestic investment - means profits aren’t kept within the country + threatened economic welfare as less understanding of consumer demand
Example of failed FDI
Tesco forced to close stores in Malaysia in 2020 as unsuccessful due to not knowing consumer demands
Example of tariffs/quotas being used as punishment
Eu $4 billion fine on US imports
Issues with globalisation in HICs
Created structural unemployment, especially in manufacturing industry
Example of free market economic development
China - Deng shifts them from command to free market economy - 700 million brought out of poverty
Current rates of UK inflation and debt
Inflation- 3.2% Debt - 100%
Uk current interest rates?
5.25%
