Macroeconomics Application Flashcards
Which economies have recently grappled with high inflation?
Most of the developed world e.g. USA and UK, although this was particularly an issue for Türkiye and Argentina. Inflation soared in excess of 100% in Argentina.
Interest rates in Türkiye were increased beyond 40%.
Which nations experienced high consumer confidence post pandemic?
India, Indonesia, Qatar.
Which country has low and which has high household indebtedness?
Germany has low household indebtedness, at only 56% of GDP.
The UK has high household indebtedness, at 90% of GDP.
What is an example of income tax reductions?
In 2018, Donald Trump announced Federal income tax reductions in the USA on 5 of the 7 bands.
From January 2024, the UK government cut the main National Insurance rate from 12% to 10%, in an attempt to boost real disposable income.
What is an example of high taxation?
Higher earners in Scotland will face increases in income tax in several ways.
In 2013, France introduced a tax of 75% for anyone earning over a million euros. However, they were forced to reverse the policy in 2015 due to millionaires threatening to or actually leaving France.
What is an example of low corporation tax?
Ireland’s corporation tax is 12.5%.
What is an example of high corporation tax?
The UK increased corporation tax from 19% to 25% in 2023 to raise government revenue.
What is an example of government stimulus spending?
From March to the end of 2020, the UK spent approximately £300 billion on a variety of policies to boost growth and protect jobs.
What are some statistics that outline the austerity policy followed by Greece after the 2008 recession?
Between 2010 and 2015:
Gov. spending on healthcare fell by 50% and gov. spending on education fell by 20%.
Why did SRAS shift to the left 2022-3 for many countries?
The global prices of oil, gas, electricity and agricultural commodities rose dramatically, thus input prices went up and hence costs of production rose.
What is an example of a demand side shock?
Covid pandemic, GFC (2008), high interest rates (2023) have caused recessions in the Eurozone.
What is an example of a supply side shock causing a recession?
Germany entered recession in 2023, largely due to the dramatic increases in oil, energy and food prices as a result of the Russia-Ukraine war.
Japan raised sales tax from 5% to 8% in 2019 which shocked the country into recession.
What are some applied examples of limitations of GDP growth?
- Large informal sectors in Italy and Greece, approx 25%.
- Environmental costs associated with growth in India and China, air pollution and resource degradation
- Unequal distribution of income in countries such as Nigeria and Botswana. Income inequality in the USA is one of the highest in the world.
- Norway and Switzerland’s currency are overvalued, makes comparing GDP per capita difficult
Which country illustrates the costs and benefits of growth?
China, many costs of growth e.g. environmental but the benefits outweigh the costs, e.g. living standards.
What are some applied problems with using CPI to measure inflation in the UK?
i) No individual represents the ‘average person’
ii) Does not consider shrinkflation
iii) Housing costs represent an increasingly large expense, they are not included on standard CPI
iv) Basket updates could be viewed as too slow
What is an example of demand-pull inflation?
During rampant Chinese growth (2000-2007), inflation peaked at 9%.
What is an example of malignant deflation?
Japan has battled deflation continuously since the 1990s.
What is an example of benign deflation?
Between 2015 and 2016, the UK inflation rate hit a low of -0.1% due to falling oil and commodity prices. It did not feed through into expectations, so simply benefited consumers.
What are applied examples of the costs of inflation?
i) Higher than target UK inflation has eroded purchasing power.
ii) Negative real interest rates have eroded savings in the UK
iii) Export dominant countries such as Brazil have struggled with inflation rates above 10%, as it has harmed export competitiveness.
iv) Rates of inflation in Argentina above 100% have led to damaging wage price spirals
v) Income tax bands frozen until 2029, fiscal drag in the UK
What is the margin of uncertainty with the Labour Force Survey in the UK?
+/- 3%
In the UK (2023), what percentage of those between 16-64 were economically inactive?
21.1%
How many people were working part time in the UK in 2023?
8.5 million
Why is immobility of labour so high in India?
Many young people trained for jobs where there are few vacancies. There is a high demand for engineering workers but current skills do not match.
What is the natural rate of unemployment in France and Spain?
6-8% in France
12% in Spain
Strict hiring and firing laws are responsible, hiring low skilled workers is a risk.
What has been the impact of minimum wages in both UK and Germany?
They have not reduced employment.
Employers have chosen to absorb the costs rather than lose staff.
What were the costs of unemployment in Greece?
With high unemployment rates over 10%, a large chunk of government revenue is directed to dealing with the social costs of unemployment, poverty, crime, mental health conditions. Problems of hysteresis as well.
How did the Bank of England respond to the coronavirus pandemic?
They cut interest rates from 0.75% to 0.1% and issued £450 billion of QE. However, consumer and business confidence were so low that these policies had little impact. Instead, some have warned that they have contributed to the current inflation problems.
Which countries have used negative interest rates?
Japan, Switzerland, Sweden, Denmark
How much did government spend on fiscal stimulus during Covid?
£400 billion, which was borrowed. Spend on furlough scheme, cuts to VAT, Eat Out to Help.
However, national debt is now around 100% of GDP.
What was Japan’s fiscal stimulus during Covid?
$1.1 trillion dollars.
Its debt to GDP ratio is over 200%.
What did unemployment peak at during Greece’s austerity?
25%
Output has contracted by 25% since 2009.
What was the impact of austerity on UK budget deficits?
They fell from 10% in 2009 to 2% in March 2020. Debt reduction enabled the huge fiscal stimulus seen during Covid. Some argue that debt to GDP could have fallen further if government had borrowed to stimulate growth, as interest rates were very low.
What are the changes to Scotland’s income tax bands from 2024?
The top rate will increase from 47% to 48%. A new 45% tax rate will be introduced. Other tax bands will remain frozen. Government aims to raise government revenue to fund public services. Laffer Curve? People move to England?
