Macroeconomic essay-style questions/general essay points + points Flashcards
‘Assess the possible effects on UK macroeconomic performance if exports grow more quickly than exports’
Intro, 3x pargraphs and conc (25 marks)
Intro - Good + bad for different reasons
P1 - Good as productivity rises, AD rises, more govt. tax revenue for supply-side policies, however, demand-pull inflation
P2 - If injections exceed withdrawals, UK has high MPM however, protectionism
P3 - Reduction in current account deficit, however, overreliance on one industry can be problematic, e.g. car market.
Conc - Good and bad effects in different ways
‘Evaluate the extent to which the government can actually control the money supply’
Intro - To a large extent, however, depends on what the govt. prioritises in regards to macroeconomic objectives, other policies etc.
P1 - Govt can use Q.E, boosting money supply and more consumption and AD -> however, potential deficit from many imports (high MPM?)
P2 - Govt. can use floating exchange rate + no monetary policy required for maintaining exhcnage rate -> however, strong exchange rate could lower international competitiveness, causing a deficit from imports > exports
P3 - Govt. can use contractionary monetary policy to lower AD if boom causes overheating -> however, despite falls in exchange rate (value) causing inflation (which could cause a deficit), Marshall-Lerner states…
Conc - govt. can control money supply, however, this depends on what they prioritise with objectives and their other approaches to economic aspects and policies they use.
High consumption can lead to…
- Demand-pull inflation
- Bottleneck shortages
- Imports exceeding exports as more is bought
- HOWEVER, Marshall-Lerner condition…
Why may a current account deficit be successful?
- Marshall-Lerner condition states that a country can be successful on a current account deficit if the PED for exports and imports exceed 1 , (PED needs to be elastic for exports and imports).
Deflation can lead to…
- Bottleneck shortages (full capacity reached due to high consumption)
- current account deficit
High investment can lead to…
- Higher FDI could lead to higher consumption from higher consumer confidence -> Boost AD
‘Evaluate the extent to which a government can achieve its objectives using monetary policy’
Intro - Thye can use this however, other measures can be taken and they may be conflict between economic objectives.
P1 - Use Q.E to boost economic growth or even AD HOWEVER, demand-pull inflation
P2 - Lower interest rates to reduce reward of saving which could boost consumption HOWEVER, Imports could exceed exports, which could lead to a current account deficit
P3 - Lower I.R rates to boost consumption -> More tax revenue for the govt. which could go towards supply-side policies and investment into education and training HOWEVER, environmental impacts, a conflicting objective
Conc - Match intro, fiscal policy could be better…
‘To what extent does the UK financial system pose a risk to the UK economy?’
Intro - A significant extent, 2008 financial crash, MPM etc
P1 - Credit crunch however, fiscal policy to stop economy overheating
‘To what extent have the economic benefits of globalisation favoured developed countries over developing countries?
Intro - to a significant extent, despite developing countries having more job creation, better living standards and more
P1 - Favoured and favours developed countries as they were able to use MNCs to expand, exploiting economies of scale which can attract FDI, HOWEVER, inflation
P2 - Favoured and favours developing countries as the consumers have more of a selection of products, HOWEVER, skilled workers may move to developed countries
P3 - Favours developed countries over developing countries as MNCs provide more employment, and tax receipts the govt. receive can go towards supply-side policies, despite potential BoP deficit, MARSHALL-LERNER states…
Conc - Significant extent, due to better financial system, living standards, more employment and more.
‘Using the data and your knowledge of economics, evaluate the view that the UK should focus its monetary policy on managing the exchange rate in order to improve macroeconomic performance’
(25 marker)
Intro - Yes, as wide fluctuations possible, speculative pressure and it can impact macroeconomic objectives etc
P1 - Yes, to prevent credit crunch from speculations e.g. 2008 crash HOWEVER, UK may introduce red tape with exchange rate management which may reduce competition and reducing incoming govt. tax revenue
P2 - Yes, to prevent bottleneck shortages from higher inflation -> Due to floating exchange rate HOWEVER, to combat rising imports to cover insufficient resources, reducing imports would depend on PED, despite what the Marshall-Lerner condition states
P3 - Yes, as the potential occurence of wide fluctuationd could create uncertainty amongst investors and may reduce confidence -> This may reduce AD HOWEVER, expansionary fiscal policy could boost AD by boosting govt. spending and taxation
Conc - Yes, as it would affect global trade + Macro objectives + Could be seen with 2008 crash
Most likely short-run trade-off between macroeconomic objectives being achieved…
- Govt. budget deficit rises as the rate of unemployment reduced
What type of bank has customer deposits as its main liabilities…
- A commercial bank
