Macroeconomic policies in a global context Flashcards
Are economies isolated or highly interdependent?
Highly dependent
What is the effectiveness of macroeconomies policies and direct controls used by government dependent on?
Global environment
Explain the aim of reducing fiscal deficits and national debts
- Unsustainable debt is bad
- Austerity to reduce deficits and debts has long term effects which create hardships for households and increases inequality
Explain the aim of reducing poverty and inequality
- Some countries have progressive tax systems
- Some countries have progressive tax systems and free education and healthcare
- heavily influenced by political ideology and normative economics
Explain the aim of change in interest rates and the supply of money
- Central banks change interest rates and the supply of money based on internal needs
- May wish to keep interest rates lower, but to stabilise the currency they have to respond by raising interest rates
- Increasing money supply may create inflation
Explain the aim of increasing international competitiveness
- Include protectionism = Effectiveness depends on response of trading partners
- Policies to improve international competitiveness can result in creating internal domestic conflicts
What are some examples of recent external shocks which have forced governments to respond with a range of policies?
- Global Financial Crisis 2008
- Arab Spring
- Asian Tsunami of 2011
- Global Trade War
- Global Pandemic
- The Russian War
What does the ability of governments to control global companies dependent on?
- Power of government in relation to the power of Transnational Corporations
- The absence of corruption
- The state of development of the legal, financial, media and political institutions
- The state of development of the economy as a whole
What are other measures to reduce transnational abuse of power?
- Setting more rigorous labour protection laws as well as ensuring that transnationals are using local labour and not labour from their own country
- Establishing more rigorous laws around technology transfer between local and transnational firms
- Establishing limitations on targets on the level of exports by the transnational firms
How is inaccurate information a problem when applying policies?
- Data often lags reality as underlying economic conditions can change quickly
- Data on unemployment, inflation, GDP growth
How are risks and uncertainties problems when applying policies?
- Identifying risks and establishing the uncertainties contained within any policy decision can be a very difficult task indeed
- Risks may be greater than expected
- Uncertainties may not even be identifiable
How is the inability to control external shocks a problem when applying policies?
- External shocks have a ripple effect on economies around the world and globalisation makes it very difficult to protect against them
