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AQA A level Economics, macro > Real life examples, macro > Flashcards

Real life examples, macro Flashcards

1
Q

Interest rates affecting C and I in AD equation ; low

A

Lowered in china in 2023 to promote consumption
Japan set at -0.1% to promote cosumption and fight deflation

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2
Q

Interest rates affecting C and I in AD equation ; high

A

Turkey
High rates of inflaiton since 2019 driven by weak currency, COVID crashed economy and Lira
Increased rates from 4% in 2020 -> 14% in 2022 -> beyond 40% today
ALL TO HALT INFLATION SPIRAL

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3
Q

High consumer confidence boosting C in AD equation

A

High oil prices and strong performance in oil exporting nations such as UAE and Qatar

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4
Q

Low consumer confidence reducing C in AD equation

A

China, 2022, strict COVID restricition and border policies. Remains low in 2024

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5
Q

Positve wealth affect increasing C in AD equation (high asset prices)

A

In UK, high correlation between house price growth and consumption; house prices rising since 2010

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6
Q

Negative wealth affect decreasing C in AD equation (Low asset prices)

A

Chinese real estate market collapes in 2023 due to liquidity issues of major property developers

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7
Q

Low household indebtedness -> affecting C in AD equation

A

Germany, extremely low for western country, $2200 per household excluding mortgages
Result of german culture

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8
Q

High household indebtedness -> affecting C in AD equation

A

UK and USA higly reliant on debt to dirve conusmption
UK household indebtedness is at 90% of GDP; £12,800 excluding mortgage debt

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9
Q

High real disposable incomes ->affecting C in AD equation

A

Economic growth in India, strong throughout 2023

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10
Q

Low real disposable incomes -> affecting C in AD equation

A

Economic crisis in Venezuela
Real disposable incomes falling from $18,000 GDP/Capita PPP in 2013 -> $6,000 GDP/Capita PPP in 2024
in 11 years

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11
Q

Low income tax rates -> affecting C in AD equation

A

2018, Donald Trump announced Federal income tax reductions in USA on 5 of the 7 tax bands -> aiming to raise real disposable incomes

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12
Q

High income tax rates -> affecting C in AD equation

A

Scotland, high income earners face increases in income tax from 2024.
Top rate will rise from 47% to 48%.
A new 45% tax band will be added for earnings between 75k and 125k

  1. France president imposed a millionares SUPER TAX of 75% for anyone earning more than 1 million euros -> designed to improve state of government finances after Great Financial Crisis
    2015 policy was reversed given millionares leaving france, and many high income earners voicing disinterest in movint to france, businesses cant attract talented workers from abroad
    POLICY FAILED with budget deficits rising as policy was in place
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13
Q

Low cooporation tax to boost I in AD equation

A

2018 Donald Trump cut US coorp tax from 35% to 21% to promote domestic capital investment, FDI and encourage re-shoring

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14
Q

High cooporation tax

A

UK increased from 15% to 19% in 2023 to raise revenue

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15
Q

Government spending to boost G in AD equation

A

September 2020, France -> 100 billion euro stimulus package -> mainly loans and grants for businesses hit hard by COVID
also for Gov spending on renewable energy, job support and infrastructure

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16
Q

Austerity - Gov spending cuts to reduce G in AD equation

A

UK, conservative party from 2010 to 2019, Gov spending cuts to reduce high budget deficit

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17
Q

Weak exchange rate -> possibly boosting (x-m) in AD equation

A

Argentina Peso / Sri Lanka Rupee

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18
Q

Strong exchange rate -> possibly reducing (x-m) in AD equation

A

US dollar strengthened against major currencies in 2023 due to:
Good economic performance, high interest rates

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19
Q

Determinants of SRAS

A

Gloabl prices of oil, gas, electricity rose throughout 2022 and into 2023 -> Germany, staglaftion, Russia Ukraine war

2020 UK VAT cut

20
Q

Demand side shocks causing recessions

A

Coranavirus Pandemic 2020 ; shutting down parts of countries, businesses running at limited capacity, deep recesions worldwide

Also, COVID crashed commodity prices, driving countries reliant on export of these like NIgeria fell into recession

Great Financial Crisis of 2008

Housing market crash in US between 2007 and 2009

21
Q

Supply side shocks causing recession

A

Germany entered recession in 2023 due to increased costs of production from oil, energy and food prices due to Ukraine war. Led to staglfation ; higher infaltion than growth

22
Q

Problems with GDP as measure of growth

A

Informal sector in Italy and Greece, approx 25% of their GDP

Deforestation in Malaysia

Over specialisation in Botswana (diamonds)

Switzerland have over valued currency

23
Q

Benefits of growth

A

China ; higher incomes, poverty alleviation, job creation ETC

24
Q

Problems with CPI as a measure of inflation

A

UK has wide differences in tastes and preferences and incomes, no indivduals spending habbits are the same.
Inflation in 2022/23 burdened poor more given root casue of higher fuel, gas, electricity and food prices

25
Q

Demand pull inflation

A

UK and USA in 2021, strong economic growth, peaking at more than 10%

26
Q

Cost push inflation

A

Venezuela due to currency weakness -> hyperinflation

27
Q

Bad deflation

A

Japan, decades of demand side deflatiopn after banking crisis in 1990s
Anticipated, deflationary spirals

28
Q

Good deflation

A

2015 and 2016 in UK and Eurozone due to falling oil and commodity prices

29
Q

Costs of inflation, uk

A

Income tax bands in UK frozen until 2028, but inflation will drag indivudlas into higher tax bands -> fiscal drag

Turkey, Argentina, Lebanon = reduced purchasing power

30
Q

Cyclical unemployment

A

Coranvirus -> USA, Greece and Spain

31
Q

Structural unemploymejnt

A

India, 50% of population under 25, being trained for jobs for which there are little vacancies

Uk loss of comparative advantage to textiles industry to south east asia

32
Q

Real wage unemployment

A

Germany minimum wage in 2015 -> employers absorbing cost increase and as a result, real wage unemployment

33
Q

Costs of unemployment

A

Greece = Unemployment rates in excess of 10%, with national debt at 180% of GDP -> dealing with costs of unemployment

34
Q

Expansionary monetary policy ; lower interest rates

A

Monetary Policy Committee of the Bank of England, in response to COVID economic crisis, lowered rates from 0.75% to 0.1% -> aiming to boost economic growth

Result = interest rates were already very low + lwo consumer and business confidence so money wasnt spent, limited effectiveness, needed huge QE instead -> cirtics argue that this fueled inlfation

35
Q

Expansionary monetary policy ; QE

A

Uk, post covid, £450bn

36
Q

Expansionary monetary policy ; EXTREME negative interest rates

A

japan -> -0.1% for commercial bank deposits, to boost economic growth and ensure positive inflation rates after COVID

Commercial banks, as they must pay fee to hold money at central bank, incentivised to keep less money there and lend out cash to cosumers and businesses to boost spending

37
Q

Contractionary monetary policy ; higher interest rates

A

Throughout 2022 and 2023, Fed reserve and Bank of england raising rates and introducing quantative tightening to tackle inflation

Close to not working with lower growth, has now worked, room for expansionary policy in 2024

38
Q

Supply side policies

A

In UK,from 2019, investment tax free allowance has increased five fold from £200k to £1million -> incentivising businesses to invest

NHS budget will increase in real terms in 2025

39
Q

Protectionism

A

USA v China Trade War

2018 Donal Trump launched trade war against them due to the 375bn US China trade deficit, accusing them of illegal dumping and many other things

He imposed tariffs, starting at 10% but hitting 25% by may 2019

China retaliated with 25% tariffs on US exports

Firms like Harley Davidson moved some production away from US to avoid tariffs -> US growth in economy slowed in 2019 due to cost psuh inflation -> trade deficit actually widened to 420 billy at end of 2018.

Biden has kept them in place

China ahs also suffered from lower growth, 6.2% in 2019, lowest in 28 yrs

40
Q

CA deficit

A

UK over last decade, made up of large deficit -> caused by strong domestic income growth and a weak domestic manufacturing base AND a lack of international competitiveness due to high wages.

Critics = concerned over UKs ability to attract FDI and foreign buyers of british debt to run consistant FA surpluses given uncertain Brexit climate

Pros = Main driver is high income growth creating large sucking in effect of imports, indicating propserity in economy. Britain has no problem attracting FDI given size, strength and stability of UK economy -> policies to reduce deficit could have nasty side effects

41
Q

CA surplus

A

China since 1990s, peaking at 10% of GDP in 2007 ->
exploiting their comparative advantage -> driven by trade surplus

Problems = Economcy dependant goods exports without other signifcant avenues of growth. Whenever trade figures dissapoint; chinese gov has to spend large amounts of borrowed money

42
Q

Weak exchange rate

A

UK, pound falling by 15% after brexit vote against major currencies.`

43
Q

Fixed exchange rate

A

Denmark’s Krone fixed agaisnt Euro since 1999
UAE Dirham against dollar

44
Q

Managed exchange rate

A

Chinese Yuan, authorities regularly intervene to manage rates to suit interest of chinese economy.
In 2019, devalued Yuan by slashing interestr rates three times to boost exports in middle of trade war with US

45
Q

Globalisation winners

A

Vietnam
Once heavily centralised after Vietnam war -> economy opened up through a series of economic trade political reforms known as ‘Doi Moi’ reforms ; trade liberalised through reduction in tariffs, FDI encouraged and red tape was reduced

Recently joined trading bloc ASEAN

Vietnam now specialised in exporting textiles

Incomes in 1985 of $230 GDP/Capita
Now at $2400 GDP/CApita

46
Q

Globalisation losers

A

Sub Saharan African countries
Slowest rate of HDI since 1980s because of resource curse, falling into deep recessions whenever commodity prices fall or overseas demand weakens

AQA A level Economics, macro (14 decks)

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