Th3.5: Minimum Wage - Macroeconomic Effects Flashcards
1
Q
What are the four macroeconomic effects?
A
reduce inequality
rise in AD
worsened public finances
reduction in competitiveness
2
Q
Reduce inequality
A
they are able to reduce inequality
3
Q
Rise in AD
A
since the poorest people see a rise in income and they have a high MPC - this will lead to economic growth and employment :D
4
Q
Worsened public finances
A
as the government employs many people on the minimum wage
5
Q
Reduction in competitiveness
A
the rise in business costs will lead to a reduction in competitiveness, which will negatively affect the trade balance and reduce the net trade component of AD. it will also increase SRAS, causing inflation in the short term