macroeconomic policies in a global context 4.5.4 Flashcards
policies reducing fiscal + national debt
policy of austerity 2010-derease spending increase taxes reduces living standards+income equality
free market-spending can be reduced by cutting waste but that may not make much difference
stimulate demand with spending->economic growth->higher tax rev ->budget surplus+national debt reduction
automatic stabilisers->economy grows so national debt reduces as a percentage of GDP
default on loans ( high economic cost)
policies reducing poverty/inequality
progressive tax
inheritance tax reduces wealth inequality (less money passed to next gen)
gov expenditure in the form of benefits and transfer payments
goods and services eg healthcare
reduce wage differentials
access to education
price controls on essentials increases spending power of the poor but can cause excess supply+black markets
trickle down effect
law of diminishing marginal utility
types of benefits the gov may use to reduce poverty/inequality
universal benefits-anyone who meets the criteria eg child benefits
means tested benefits-sufficiently low levels of income, people who need the most help
how can the gov reduce wage differentials
national minimum wage (can cause unemployment)
maximum wages/pay ratios to reduce incomes of the rich (loss of most skilled workers)
equal pay legislation prevents inequality between men & women/ different ethnic groups
trade union friendly legislation allows workers wages to rise, those in the unions are more likely to be low paid
employers forced to provide benefits eg sickness benefits, pensions
trickle down effect
increasing incomes from the rich increase income of the poor-rich create jobs by spending & employing others, inequality encourages people to work hard
what effect does the law of diminishing marginal utility have on inequality
redistribution increasing total utility, better allocation of resources, higher spending=less satisfaction gained from spending (Denmark has high growth rates even with redistribution being high)
use of policies to change interest rate and supply of money
central bank has the ability to change interest rates + monetary supply for domestic reasons (control inflation)
global issues (low exchange rate), a fall in bank rate increases supply of money as loans are in higher demand
consensus to manage demand side inflation but allow supply side shock inflation
why don’t central banks have complete control over the supply of money
they can’t control the ability of the financial system to create credit
globalisation of the financial market makes it harder to control domestic money supply
policies to increase international competitiveness
gov can increase any factors affecting competitiveness
supply side measures improve productivity,involves tax + deregulation, encourages comp+efficiency , placing emphasis on quality +tax incentive also helps, education improves human capital
exchange rate policies-control inflation+macroeconomic stability
WTO+trade agreements
policies to combat negative external shocks
globalisation makes economies increasingly interdependent
commodity price shock with a rise in oil prices->expansionary policy to reduce impact of fall in GDP/deflationary to reduce impact of inflation
Brexit->interest rates lowered to improve confidence, raised to deal with inflation
policies for TNCs
TNCs can bring huge gains to an economy through creation of jobs + tax revenue +knowledge and investment
negative economic & social impacts eg destroying local culture, affecting environment and withdrawing more in profits than injecting in investment +influence politicians to take decisions that favour their interest
some countries don’t allow TNCs without joint ventures so some profits remain+tech transfers
import contracts-at least some of the stuff must be manufactured in the country
policies to regulate transfer pricing
if taxes are higher in the first country they can set lower prices to increase profits in the low tax country
transfer pricing
one way to engage in tax avoidance
firms produce goods in one country to transfer to another to make another good
policies to control global companies
it’s hard for individual govs to control TNCs
small countries earn less rev than a TNC earns in profits
tax avoidance schemes (dutch sandwich where profits are routed through Ireland/Netherlands and sent to a tax haven like the Bahamas), difficult to have a worldwide agreement, any solution that benefits the UK leads to losses in Ireland etc and are time consuming+costly
problems policy makers may face
inaccurate information
risks+uncertainties
external shocks
