Summer Exam Added Detail Flashcards
Qe- history of monetary policy
Japanese economy strugggeld with ecession for years despite v low interest rates- sometimes bnegative
Weak currency not boost exports during time of global rcession when demand is weak overseas
Boe reduce vank rate to 0.5 in 2008 and two bouts qe- insuffiient to brbig econ to natural rate of output
Concerns by neo-clasical economist and monetorist over investment/keynsian to lift out recession
Mistimed- sppending increased too late and not reigned in appropriately when private sector begins to recover
Gov failure result in gov selecting wrong prjects that might not boost as in lt
Too much gov intervention lead to an inefficient allocation of resources and lower econ growth in lt
Monetary poicy only st defence to fal in ad, may be better to allow the rrecessioins to follow natural causes- automatic stabilisers
Why should persue supply side policy
Encourage productive and allocative efficiency so the ecobomy is more resilient and markets are sufficiently flexible to enable the econ to recover quickly from recession
History- supply side may be detremental short term
Reduce equity- eg parents increaed incentive to find employment, but may increase child poverty in sth st
Recession diff to find employment
Thatchrr- 1980s supply side reforms- great social unrest in st
Sharp rise in unemployment in 1980s and 90s as privatised industes sought to become more efficient and manufacturing industries declined
Real wages fell for those in expanding service sector
When can dereglation go too far
Lead to econ instability as evidenced by the recent credit crunch and banking crisis
Neo classical reovery from recession
With no intervention
Sras shifts right as costs fall (as unemployembnt rises), econ recover therfore returns to natural rate of output at lower price level
Neoclasical approach to inflation
Rise in ad would lead to a positive output gap, position would not be sustainable as the accelerating inflation in turn would lead to a rise in the costs of production
Sras shift left, econ return to natural rate of output but at a higher price level
Lead to loss of international competitiveness, therefore neoclassical and moentarist economies believe it is v important to keep inflation under control via monetary policu
Why gov should not artificially boost ad to increase econ growth
Lead to accelerating inflation according to neoclassical and monetarist economists
Neoclassical stance on philips curve
Verticle in long run
Attempts to reuce inflation by boosting ad is likely to lead to accelerating infation
Workers suffer from oney illiusin and tempted into employment at higher nominal wage rate but eventally realise not any better off and withdraw from labour market
Any firms that have increased output due to money illusion soon realise costs have increased, firms cut bback output to profit maximising capacity and econ return to its natural rate of output and natural rate of unemployment at higher price level
Keynsian view of philips curve
One as which becomes verticle at full employment, beyog which not possible to increase output
At full employment, increase in ad results in higher prcies and no increase in poutput
At v low levels ofo output, as is perfectly elastic and econ likely to be in deep recession
Keynsian activate active fiscal policu- increase gov spending
Successful flexible labour market
Denmark flexicurity
Easy hire an fire- employment legislation liight
Devote more resources to education and training to create highly skileld workforce that is relatively occupationaly mobile and welfare benefits generous
As danish gov run budget surplus many years before covid- afford to invest heavily in education and training
Structural unemployment tackle with
Supply side policies
What order of apporach for tackling inflation or unemplyment
Monetary
Fiscal
Supply side to support but time lags mean not in sr
Consequences of very high levels of taxation
Lower tax rev
Lower econ growth- crowding out effect and brain drain
Higher levels of tax avoidance and tax evasion
How does a fall in the money supply result in fall in inflation
Fall in ad
Via transmission mechanism
Why accelerating inflation during 1870s
Labour market inflexible- tu strong and many markets dominated by nationalised insurties with monopoly power- easily pass on higher costs in the form of higher prices to consumers
Higher inflation damaged britihs irms that competed on international markets, los of sales (lack of exports and higher imports) higher structural unemployment
Successive lab and con gov tried to conrtol these wage-price inflationary spirals with wage and price ceilings- prices and incomes policues
But these distrot price signalling mechanism and led to many industrial strikes- force gov to abbadon the price and wage ceilings
Further rise in prices and wages and inflation would accelerate again
Which better inetrest rate incrase or inflation increase
Short term pain of high interest rates may be lesser evil than damage high rates inflation can inflict on an conomy
Qe asset bubbles
Which are inherently uunstable and likely to burst if econ shock or unforeseen change in econ circumstances that leads to financial institutions and private individuals selling shares and other assets
Collapse in share or property prices could lead to a collapse in consumer confidence and a subsequent fall in ad
Threat of return to malign deflation
Floating exchange rates- demand for currnecy
Dependant upon demand for economy export and demand for the currency for investment puropoes
Hot money flows and fdi
Supply of currency depends on
Demand for imports and demand for foreign currency from and economy citixen in order to invest overseas
Link exchange rate and exports
Spiced
Strong pound imports cheap export dear
If econ at natural rate of output danger of weakening the currency
Through reducing interest rates
To increase demand for exports
Would also increase domestic ad therefore increase demand pull inflationary pressures
As well as increasing cost push inflationary pressures due to the increased cost of vital imports
Expendaiture switching policies
Raising excise duties (import taxes or tarrifs) to reduce demand for imports
Import taxes or subsidixing exports would be considered protectionist and may be counter porductive resulting in retaliation and consequently less econ activity and less internationaal trade
Import taxes protectiionist and likely to lead to retaliation
Import duties and quotas reduce consumer surplys leading to net welfare loss
On data description q
Value highest
Value lowest
Range
Fluctuation
Diff between two dates
Signific fall/increase
