Theme 4 Flashcards
Surplus and Deficit specific to the UK (all structural)
Elasticity of demand
Decline of manufacturing
Growth of emerging markets
Net importer of food and fuel
Lack of competitiveness
Cyclical and structural, long term short term
Cyclical is short term
Structural is long term
Partial auto correction
Exchange rate, pound weakens
Wiced - weak pound imports cheap exports deer
What’s an unbalanced economy reliant on
Imports
Evaluative points for the surplus and deficit
Partial auto correction
Investment and supply side
Capital flows
Financial account
What may the deficit lead to
Structural weakness
Unbalanced economy
Loss of output and employment
Money flowing out
Problems financing debt
Exchange rate pressure
Exchange rate policies
Widec
Interest rates decrease
Buying more foreign currency (weakens the pound)
Why might exchange rate policies not be effective
Liquidity trap
Short and long term - 18 months to be effective
Not a priority compared to inflation
How it impacts other macroeconomic objectives
J curve
Sum of elasticities need to be more than 1
Deficit gets worse before it becomes a surplus
Protectionism and where it can be seen
Import duty - raise price
Embargo - ban on import
Quota - limits on imports
Can be seen in supply side
Retaliation for evaluation of protectionism
Government use subsidies
World trade organisation promote free trade
Reasons for surpluses and deficits
Uneven distribution of natural resources
Differential competitiveness
Exchange rates
Inflation
Investment and long term economic growth
Domestic and government spending
Causes of Current Account Deficit
Poor price - non price competitiveness
Higher inflation than trading partners
Weakness in design
What does a strong exchange rate mean
High currency value
Imports are cheaper
Cyclical values
Over valued exchange rate
Boom in domestic demand
Recession in key export markets
Slump in global prices of exports
Increased demand for imported technology
