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Macroeconomics Application > Macro Application > Flashcards

Macro Application Flashcards

1
Q

Example of consumer spending increasing AD

A

Trump’s tax cuts in USA in 2018, increased disposable income and MPC

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2
Q

Example of consumer spending decreasing AD

A

Covid - forced retail stores to close, fear of losing jobs increased MPS as people wanted more security, contributed to US recession in 2020

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3
Q

Example of investment increased AD

A

China’s only G20 country with positive economic output in 2020, also future plans (Belt and Road initiative) increased investment in Chinese firms

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4
Q

Example of investment decreasing AD

A

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

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5
Q

Example of government spending increasing AD

A

UK ‘T-levels’ started in 2020, spending on training for 16-18 year olds - improve occupational mobility, increase AD and LRAS

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6
Q

Example of government spending decreasing AD

A

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

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7
Q

Example of BOP deficit reducing improving AD

A

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

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8
Q

Example of BOP deficit worsening reducing AD

A

Demand for Chinese Yuan since 2020 due to greater investment raising exchange rate so reducing demand for exports

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9
Q

Example of costs of employment increasing effecting SRAS

A

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

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10
Q

Example of costs of employment decreasing effecting SRAS

A

Uk furlough scheme paying 80% of monthly salaries - lower costs for producers as only have to pay 20% of wages so SRAS shifts right

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11
Q

Example of rising costs of materials effecting SRAS

A

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

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12
Q

Example of decreasing costs of materials effecting SRAS

A

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

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13
Q

Example of increasing costs of production effecting SRAS

A

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

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14
Q

Example of technological advances effecting LRAS

A

2015, China’s ten year plan to become a manufacturing superpower - involved R and D, subsidies in industry (aviation/railway) and technology- improves LRAS

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15
Q

Example of ‘zombie business’ effecting LRAS

A

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

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16
Q

Example of changes in education levels and skills effecting LRAS

A

T-levels - improved human quality, improves LRAS and productive capacity of the economy

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17
Q

Examples of competition policy effecting LRAS

A

Airline Deregulation Act 1978, allowed more firms to enter market to improved competition and efficiency so LRAS

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18
Q

Example of a cause of technological structural unemployment

A

Automotive industry - workers replaced by machines able to outperform them at lower costs - also workers lack qualifications or training in other industries

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19
Q

Example of a cause of regional structural unemployment

A

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

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20
Q

Example of seasonal unemployment

A

Amazon employs many more workers around Christmas to deal with larger demand for goods , then lays them off in January

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21
Q

Example of cyclical unemployment

A

Covid 19 - worsened cyclical unemployment in the hospitality sector due to lockdown so lack of demand from consumers

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22
Q

Example of demand-pull inflation

A

Christmas creates seasonal inflation as greater demand for gifts

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23
Q

Example of cost-push inflation recently

A

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

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24
Q

Example of cost-push inflation in the 1970s

A

1973 oil embargo

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25
Q

Example of the BoP worsening the current account

A

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

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26
Q

Example of a country controlling a current account surplus

A

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

27
Q

Covid-19 impact on interdependence of economies

A

Less interdependence, so current accounts become less volatile to external economic shocks

28
Q

What did the 2006 stern report state?

A

Climate change was costing the world 20% of GDP annually

29
Q

How did the EU emissions trading scheme cause a clash of policy objectives?

A

Firms forced to adapt green energy or risk insolvency, rising costs so harms GDP growth

30
Q

What is stagflation?

A

High inflation and high unemployment, triggers deep recessions

31
Q

How did the UK use monetary policy during Brexit?

A

Interest rates were lowered to 0.25% to prevent a reduction in GDP growth as investment reduced due to uncertainty of UK economy

32
Q

How did government use monetary policy during Covid?

A

Interest rates were lowered to cope with a lack of demand and investment in the global economy

33
Q

Between 2018-2020 how did USA use monetary policy to prevent inflation?

A

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

34
Q

How has the 2008 financial crisis affected how monetary policy is used?

A

High interest rates are rare to prevent the risk of it happening again

35
Q

What is Green Quantitive Easing?

A

Governments only buy bonds off companies that fund environmentally friendly projects, due to climate change crisis

36
Q

How did the USA use the Lehman brother as an example in the 2008 financial crisis?

A

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

37
Q

What are the issues with the independence of central banks?

A

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

38
Q

What is an example of flexible form of average inflation targeting, and what is its aims?

A

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

39
Q

What is monetary financing + an example?

A

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

40
Q

Why did Covid lead to a shift from monetary to fiscal policy?

A

Independence of central banks threatened, liquidity trap, QE impact diminished as it became overused

41
Q

Example of the UK decreasing tax to boost investment?

A

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)

42
Q

Triple-tax lock meaning

A

2019, UK government promised not to raise BAT, income tax or national insurance - however Covid May changes this as MPC rose

43
Q

How did the UK try and improve the economy using fiscal policies during the 2008 financial crisis?

A

Uk government deployed many fiscal stimulus (I.e cutting VAT) - worsened the budget deficit

44
Q

Impact of Greek austerity policy between 2010-2012?

A

Economic growth decreased by 25%, worsened unemployment, spending on training and education reduced by 20% so worsened supply

45
Q

Example of UK government supply-side policies in 2019?

A

£400 million spent on education and a pledge to improve teacher salaries to minimum £30,000 a year - motivates teachers so improves education quality

46
Q

Uk immigration plans in 2020 effect?

A

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

47
Q

Example of UK reduced corporation tax boosting supply?

A

Jaguar Land Rover built factory in midlands, creates jobs and also reduced deficit as they made tax contributions

48
Q

Example of infrastructure investment boosting supply?

A

HS2 railway - £80 billion project joining London, Manchester and Birmingham - improves geographical mobility

49
Q

Issues with trade unions effecting productivity?

A

Trade unions make workers less motivated to work on current wages as expect them to earn more - argument productivity between without unions

50
Q

Issues with UK exchange rate in 2015 whilst still in EU

A

Pound strengthened against the euro, caused a drop in UK demands from European countries (I.e Oxford instruments to Russia)

51
Q

Impact of USA dollar strengthening in 2020

A

USA longest ever economic growth, strong dollar hurt US firms profits as drop in demand for exports

52
Q

Example of a fixed exchange rate being successful

A

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

53
Q

Example of hot money being used to devalue currency?

A

China decreased interest rates - leads to hot money outflows and less demand for Yuan so Yuan can be devalued sl demand for export increases

54
Q

Impact of Covid on globalisation and trade

A

Caused shift to more domestic supply chain to avoid countries being effected by economic shocks again like in Covid

55
Q

Issues with domestic supply chains

A

Smaller EoS so higher prices and higher risk of natural disasters ruining economy

56
Q

Impacts on China of growing economy

A

TNCs shifting production out of China as costs of production rise - creates more unemployment

57
Q

Issues with use of FDI

A

Crowds out domestic investment - means profits aren’t kept within the country + threatened economic welfare as less understanding of consumer demand

58
Q

Example of failed FDI

A

Tesco forced to close stores in Malaysia in 2020 as unsuccessful due to not knowing consumer demands

59
Q

Example of tariffs/quotas being used as punishment

A

Eu $4 billion fine on US imports

60
Q

Issues with globalisation in HICs

A

Created structural unemployment, especially in manufacturing industry

61
Q

Example of free market economic development

A

China - Deng shifts them from command to free market economy - 700 million brought out of poverty

62
Q

Current rates of UK inflation and debt

A

Inflation- 3.2% Debt - 100%

63
Q

Uk current interest rates?

A

5.25%

Macroeconomics Application (5 decks)

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