Policies in a global context Flashcards
Which of the following policies can a government use in order to depreciate their exchange rate? Select all that apply.
Decreasing the base interest rate will decrease the hot money inflows as fewer investors will want to save in that country. This will decrease demand for the currency and therefore decrease (depreciate) the exchange rate.
Central banks can also sell their domestic currency in order to buy foreign currency reserves. This will increase supply of the currency and therefore decrease (depreciate) the exchange rate.
What does decreasing the interest rate mean as an exchange rate policy and a _____ policy?
Monetary policy
Decreasing the base interest rate will decrease the hot money inflows as fewer investors will want to save in that country. This will decrease demand for the currency and therefore decrease (depreciate) the exchange rate. It is therefore part of exchange rate policy.
Decreasing the interest rate is also a part of expansionary monetary policy, as it will increase AD and cause an increase in economic growth
Which of the following policies can a government use in order to appreciate their exchange rate? Select all that apply.
Increasing the base interest rate will increase the hot money inflows, as more investors will want to save in that country. This will increase demand for the currency and therefore increase (appreciate) the exchange rate.
Central banks can also sell their foreign currency reserves in order to buy domestic currency. This will increase demand for the currency and therefore increase (appreciate) the exchange rate.
What is an increase in the rate of corporation tax an example of
Discretionary fiscal policy is when a government makes decisions to actively change tax and public expenditure. A change in the rate of taxes or benefits will always be discretionary fiscal policy, as the government has had to make an active decision to change the rate. During a boom, they are likely to try to decrease public expenditure and increase tax revenue in order to reduce inflation.
Automatic stabilisers
Automatic stabilisers occur when tax and public expenditure changes happen without government intervention and help to keep the economy stable.
What are 5 main economic policy
A: Fiscal Policy B: Monetary Policy C: Supply -side Policy D: Exchange -rate Policy E: Direct Controls
What is education spending an example of?
Investing in education would be a supply-side policy and would help to increase the long run potential of the economy by increasing human capital. It allows businesses to operate more efficiently and increase productivity. This would shift LRAS to the right as shown.
However, investing in education also involves an increase in public expenditure which is a type of expansionary fiscal policy. So, there is an overlap between some fiscal policies and supply-side policies.
Which of the following policies is an increase in government benefits an example of? Select all that apply.
Increasing government benefits is an expansionary fiscal policy because it is trying to expand the economy by increasing public expenditure.
However, increasing benefits will decrease the incentive to work, which will decrease labour supply. This will increase the wage, which will increase the cost of production and cause a decrease in SRAS. This means that it is not a supply-side policy - it decreases aggregate supply.
”Last year, the California auditor’s office issued a report that looked at accounting records at the State Controller’s Office to see whether it was accurately recording sick leave and vacation credits. ‘We found circumstances where instead of eight hours, it was 80 and in one case, 800,’ says Elaine Howle, the California state auditor. ‘And the system didn’t have controls to say that’s impossible.’ The audit found 200,000 questionable hours of leave due to data entry errors, with a value of $6 million.”
Source: http://www.governing.com/topics/mgmt/gov-bad-data.html
Which of the following describes the problem faced by the policymakers in California?
Inaccurate information had a large opportunity cost
The policymakers in California found that 200,000 hours of leave had potentially been submitted inaccurately. This cost them $6 million of wages, which they may not have had to pay if they had accurate information. This $6 million had an opportunity cost as the money could have been spent elsewhere.
Which of the following is likely to be a source of inaccurate information?
GDP estimates can be very inaccurate. It is really hard to calculate the value of everything that is produced in an economy. If there are large black markets in a country then there are many transactions which are not being declared for tax purposes. This can make GDP estimates even more inaccurate.
Unemployment is also very difficult to measure, so unemployment measures can be a type of inaccurate information. This can be because unemployed people don’t always register for benefits, and many work informal jobs. It is therefore difficult for the government to know exactly who is employed.
The official total cost for HS2, as set out in the 2015 spending review, is £55.7bn, which, according to the government, is value for money. The government claims that every £1 invested in HS2 will deliver benefits worth more than £2.50 to the UK economy: a total of more than £103bn. Many commentators are less convinced, raising concern about growing costs and casting doubt on the government’s official figures.”
Source: https://www.theguardian.com/public-leaders-network/2017/apr/28/what-is-hs2-and-how-much-will-it-cost
Which of the following is a problem for policymakers?
There is a high level of uncertainty about the benefits of HS2
The government estimates that the benefits will be £2.50 for every £1 spent. However, this is highly uncertain, so there is a lot of risk associated with the project. It is very difficult to estimate future benefits as there are so many different factors to take into account.
Transnational corporations often own lots of smaller:
Transnational corporations often own lots of daughter companies.
Which of the following is a definition of a daughter company ?
A daughter company is a subsidiary of a parent company. This means that it is a smaller company which is owned or controlled by the larger company.
Which of the following best describes what is meant by transfer pricing ?
Transfer pricing allows parent companies to move profits between their daughter companies, in order to minimise the corporation tax they have to pay.
Transfer pricing
Transfer pricing allows parent companies to move profits between their daughter companies, in order to minimise the corporation tax they have to pay.
