Real Life Examples Flashcards
Why is Russia’s economy declining?
Because of the war they started against Ukraine, which has created geopolitical tensions that have caused sanctions to be imposed on Moscow:
These sanctions target key sectors like finance, energy & defence, cutting Russia from many global markets and supply chains (making it harder to get goods, therefore causing cost-push inflation)
-Russia has limited trading partners as most of them left after the invasion in Ukraine, meaning Russia have no choice but to buy expensive goods (again contributing to cost-push inflation)
Examples of UK supply side policies trying to encourage capital investment as a % of GDP
1.) The Labour Party in April 2025 are to increase the starting point at which small businesses pay NIC from £5000 to £10,500, thus allowing them the chance to retain profits in order to reinvest into capital stock
2.) Labour’s budget has confirmed £1bn will be invested into the British Business Bank to enhance access to finance for small firms (e.g through start-up loans)
What is an example of foreign investment rescuing a country from poverty?
Japan when it was destroyed in WW2:
-They went on to use the USA’s investments & aid for their steel and electronics industries
Now they lead in automotive & tech exports (with a GDP of $4.2 trillion)
What is an example of GDP/economic growth not representing the quality of life?
Equatorial Guinea had a PPP GDP/capita of $17,400 in 2023 (which was one of the highest in Africa, according to the World Bank)
However it’s high GDP is due to oil production that’s completely controlled by the corrupt government
Actually, 70% of the population lives in poverty, meaning they reap little to no benefits from the oil economy due to the unequal distribution (with the corruption in power)
What is an example of why unfunded tax cuts are bad?
Sep/Oct 2022 - Liz Truss and Kwasi Kwarteng’s mini budget which led to the inflation rate of 11.2% and the decrease of GBP to a record low of $1.033:
1.) The unfunded tax cuts of $45bn would’ve been inflationary as firms & consumers would have more disposable income, meaning they’d demand more, leading to increased prices.
2.) This inflation would’ve led to the devaluation /depreciation of GBP, as inflation would mean the use & purchasing power of the currency decreases, making it less attractive to investors/traders ;
this meant imports would be more expensive (therefore contributing to inflation)
3.) This meant the Bank of England had to raise interest rates to control inflation (however this meant mortgage rates would go up, making it harder to afford houses)
4.) Investors weren’t convinced the government would pay back the gilts (because of their piling debt from the unfunded tax cuts), therefore this led to the selling of gilts, meaning pension funds that relied on these gilts started to collapse - bond yields started to rise as a result of market price going up (causing more debt for the government)
5.) Therefore the central bank had to go through QE to stop the bond price collapsing and stop the bond yield from rising (therefore easing the government’s debt)
When is an example that both inflation and unemployment were low (therefore disproving the Phillips’ curve)?
In the UK in September 2024 the inflation rate was 1.7% (below the 2% target)
The unemployment rate during this time was estimated to be 4.3 to 4.4% (below 5% target)
(Side note: keynesians thought there was no trade off between the two variables)
Who proposed renationalising the Royal Mail, rail services, energy supply networks, regional water & sewerage companies, and banks in 2019 and why?
Jeremy Corbin during his election battle against the conservatives and Boris Johnson:
-There had been many strikes occurring in the rail sector and they’re abusing their monopoly power by raising ticket prices (ticket fares have increased by 23% since the 80s)
-Energy supply networks have risen their gas & electricity prices for house owners
-Water & sewerage companies like Thames water have been exploiting the public with their monopoly power (they’ve set high prices, yet haven’t been dynamically efficient in fixing leakages and pollution in the water)
-Banks have been charging high interest rates
What was an example of levelling up in the UK?
The infrastructural project of HS2 was to create job opportunities for those in the north (to reduce the inequality gap between the north and the south of the UK)
What is an example of companies trying to create shareholder democracy?
In sep/oct of 2013 the royal Mail’s flotation on the stock market when they had their initial public offering (IPO), they gave some of their shares to their workers as a reward for their hard work and to align their interests with the company’s performance:
This in turn was to make the employees more productive as there was the profit motive
Why have rental prices been more expensive after Covid?
-Supply chain disruptions
-Decreased construction activity
-Increased demand for housing in certain areas
How can the government reduce rental prices after the hike due to Covid?
-By implementing policies such as rental control or rental price caps
-Incentivise landlords to reduce rent for lower-income tenants (through providing tax breaks or subsidies)
-Subsidising housing construction (to lessen production costs and therefore make it more affordable through the benefits of economies of scale)
Why have the UK and EU imposed a windfall tax on energy and tech firms?
-To generate tax revenue
-To address the concerns about significant price increases that have led to these firm’s profitability (especially during times of economic hardship)
What was black Wednesday?
In 1992 when the pound devalued against the dollar after it withdrew from the ERM (European Exchange Rate Mechanism)
With the third heathrow runway what exports would be increased?
Scotch whiskey and Scottish Salmon
Examples of supply side policies in the labour market of the UK?
-In 1999 the labour government introduced the national minimum wage (thus increasing labour participation) (Keynesian/interventionist view)
-Income/corporate tax cuts which would create higher levels of spending and investment from consumers/firms: this would eventually create jobs; this is the “trickle down” effect (this is what liz truss tried doing but failed miserably) - this was based on the laffer curve (free-marketist view)
-In 2023, chancellor Jeremy Hunt brought in childcare reforms, where he expanded free childcare for parents (making it easier for them to work, speculating that 110,000 people would be brought back to the work force) (interventionist/Keynesian view)
-Investment in human capital (Labour in Oct 2024 said they were to carry out a 10yr plan to increase spending into public sectors such as schools): Increased access to higher education and vocational training which would lead to a more skilled labour force and more labour productivity (interventionist view)
Examples of supply side policies in the product market of the UK
1.) Privatisation (free-marketist): The sale of state-owned companies in the 80s & 90s such as railway, water & gas companies (the profit incentive & market competition encourages productive efficiency in the free market, therefore increasing output)
2.) Government investment in infrastructure (e,g Labour in oct 2024 said they were to carry out a 10 year plan of investing into schools, hospitals, housing, transport and energy):
-An educated workforce would mean there’s more innovation which may raise productivity;
-Better transport infrastructure would mean easier access to imports & resources (like with the 3rd Heathrow runway)
What is an argument against the UK seeking highly skilled foreign workers?
Those who have earned their master degrees in Hong Kong can’t work highly skilled jobs (they can only work in low-paid casual work because they face language barriers and discrimination - their qualifications/degrees may not be recognised)
-They don’t have access to public funds (such as NHS)
In late January/early February, what was the cover up Andrew Bailey used for productivity levels decreasing and what was the real reason as to why they dropped?
-Cover up: With productivity = GDP (or output) / Population of workers, immigration was blamed for the increase in the number of workers, but output hadn’t increased, meaning productivity had decreased
-Real reason: In Rachel Reeves’ budget where she raised NIC for employers (from 13.8% to 15%) this means employers have had to let off workers, leading to the output has decreased
What is an example of a central bank acting as a lender of last resort?
In 2020, the BoE provided emergency loans to UK businesses e.g SME loans (small medium-sized enterprise): this prevented firms from going out of business
