Macro-economic Policies in a Global Context Flashcards
Direct Control
Directly imposed on manufacturing, pricing and distribution of specific goods, minimum wage or quota
How has the UK government been trying to reduce fiscal deficit and national debts
They implemented tight fiscal policy to increase tax and decrease spending, but this could have limited growth and increased wage inequality
Austerity measures
Harsh economic policies aiming to reduce a governments budget deficit
What ways can the government reduce the fiscal deficit and national debt
- Crowding In effect causes growth as confidence has increased
- Automatic stabilisers can help to stimulate growth and more tax revenue
- Default on loan repayments but this is last resort
- tight fiscal
How can governments use progressive taxation to reduce poverty and inequality
Tax higher income more to redistribute wealth and promote vertical equity reducing inequality.
–> Could have unintended side effects like gaffer curve, depends on effectiveness of redistribution system
How much of UK government spending is social security and national insurance benefits
30%
How can government expenditure reduce poverty and inequality
Benefit schemes help to reduce those in absolute poverty providing enough money to maintain a good standard of living
–> benefits can reduce the incentive to work
universal benefits
Available to everyone who meets the certain criteria (child benefits)
means tested benefits
Available to those with extremely low incomes and need the most help to ensure a standard of living so these have a larger effect on poverty and inequality
How can the government providing public goods help reduce poverty and inequality
The government can provide things like healthcare and education for free to all people to reduce inequality.
–> High opportunity cost, Benefit those on high incomes swell
How can the government reducing wage differentials help reduce poverty and inequality
- NMW can improve poor incomes but may cause unemployment
- Equal pay legislation among genders and ethnicities
- Trade union legislation can help wages to rise
- Employers can be forced to provide sickness benefits, pensions which effectively increases wage
How can government price controls reduce poverty and inequality
Place price controls in a maximum price on essential goods like housing or bus fares so the poorest can afford them
–> can lead to excess demand and black market creations
What solution to inequality and poverty do free market economists offer
The trickle down effect that by increasing the income of the rich they create jobs by spending their money or employing people, inequality is necessary for there to be an incentive to work harder and earn more
Why does the law of diminishing marginal utility suggest about redistributing income to reduce poverty and inequality
redistribution increases total utility so is a better allocation of resources, redistributing large amounts of wealth out to multiple people creates a bigger effect on utility on one person having all the money, Denmark suggest high redistribution isn’t bad for economic growth
What is the general consensus of how banks should handle inflation
They should allow cost-push inflation caused by shocks as these will self correct over time, but they should intervene to correct demand pull inflation
Why would the central bank change interest rates to influence money supply
To control inflation, improve exchange rate
Why is it argued that the central bank doesn’t have complete control over the money supply
Can’t control the financial systems ability to create credit, and the system is very globalised so harder to control
Government measures to increase international competitiveness
- supply side measures like deregulation, subsidies, improve education, tax incentives can all help to improve productivity and competitiveness
- Trade agreements and blocs
- Exchange rate policy
Why can external shocks be significant
because nowadays the worlds economies are more integrated and interconnected, so shocks in one country will have larger effects
How much money has been set aside to deal with the problems caused by falling value of the pound after Brexit
£3 billion
Positives of TNCs
- Tax revenue for governments
- Create jobs
- Huge amounts of investment
- Knowledge
TNCs
Transnational companies
Problems of TNCs
- Exploiting local people
- Destroying environment
- Influencing politics
- Tax avoidance
How is transfer pricing regulated
- HMRC regulates in the UK and claims back some profits of transfer pricers
- OECD guidelines introduced in 1995 aim for arms length principle so that prices are the same in all countries
transfer pricing
Tax avoidance that is done by making a good in one country and then selling it in a different country, altering the price country to country depending on the tax rate to reduce total tax
arms length principle
two or more unrelated and unaffiliated parties agree to do business, acting independently and in their self-interest
What is the Dutch sandwich and double Irish
legal tax avoidance schemes used by TNCs which routes profits through these countries to tax havens like the Bahamas
Why is it difficult for governments to control TNCs
TNCs have immense wealth which makes them very powerful in lobbying governments, would take worldwide agreements but this isn’t likely as many countries profit off TNCs
Problems facing policy makers
Inaccurate Info - short term figures like monthly GDP can be inaccurate, and decisions are made using past data which may also be not relevant
Risks and uncertainties - Governments cannot know full impacts of their policies so take a risk when implementing
External shocks - Governments are unable to control or prepare these so can only help to reduce the impact of them
