Theme 4 - A Global Perspective Flashcards

Question

What is the meaning of "expenditure switching policies"?

Answer 1

Ways to switch the economy to increase the amount of domestic goods/services being purchased (decreasing imports) and to increase the amount other countries export from the UK to themselves (increasing exports)

Answer 2

- exchange rate policy - protectionism - government investment in domestic industry - deflationary policy - supply-side policy

Answer 3

The way that a country's balance of trade initially worsens following a devaluation of its currency (time-lag), then recovers and finally surpasses its previous performance

Answer 4

- decrease interest rates (decreases hot-money to depreciate the value of the £) - increase the number of £s in the supply (QE) (by buying lots of a foreign currency to increase demand for the foreign currency and increase supply of the £)

Answer 5

- time-lag (J-curve) - priority of objectives - conflict of objectives - decreasing interest rates, may lead to inflation - limit to how much you can increase the supply of £s because banks can't just create more money (hyper-inflation) - magnitude of interest (liquidity-trap) - Marshall-Lerner condition

Answer 6

- tariffs - embargos (ban of exports from a country) - subsidies - red tape - quotas - import duties (increase prices)

Answer 7

- retaliation - price isn't the only factor that decides whether someone buys something - foreign firms can relocate to avoid import duties - hard to enforce - loss of efficiency - may be inflationary - higher prices for consumers - WTO rules

Answer 8

- decrease government spending - increase tax rates (decreases imports because it puts-off customers from spending and decrease AD) (increases exports because the decrease in price makes them more competitive)

Answer 9

Imports: - martial learner condition - brand loyalty - still have to import some things e.g. food and fuel Exports: - there are other factors that determine exports (quality) - prices may not fall significantly (magnitude) - government spending is a small % of AD - MPM - output gap

Answer 10

Related to the concept of interdependence between firms in an oligopoly. It is used to predict the outcome of a decision made by one firm, when it has incomplete information about the other.

Answer 11

Type of game theory - a situation where two parties, separated and unable to communicate, must each choose between cooperating with the other or not.

Answer 12

Eliminates the need for players to anticipate or predict the behaviour of others, as it guarantees the best outcome regardless of what other players do.

Answer 13

First to break rank/collusion to avoid being the one worse off (drop prices, start advertising etc)

Answer 14

- increase market share - increase profit/revenue

Answer 15

- firms unlikely ro trust each other in future negotiations - collusion is still more profitable - damage to brand image of both businesses - size of fine might be small anyway - not enough/inaccurate information provided (would have never been caught) - game theory round 2

Answer 16

- increase interest rates - decrease credit availability - QT (decrease imports by decreasing AD) (increase exports by making them more competitive)

Answer 17

- martial learner condition - liquidity trap (may need to increase interest rates by a lot to make a difference) - depends on the exchange rate (increased strength of the exchange rate due to hot money) - MPM - output gap

Answer 18

- increase supply to decrease price by increasing productivity (done by increasing the number of people who work or increasing the number of businesses) - increase government spending/investments to increase competition

Answer 19

- reducing taxes - reducing regulations - reducing benefits - investing in education and healthcare - encouraging R&D - privatisation - subsidies (makes exports cheaper & allows for import substitution industry)

Answer 20

- time-lag (long-term) - other factors may change in the time it takes - opportunity cost - price isn't the only determinant - AD may increase if the number of people working increases (to improve productivity) - firms may become reliant on subsidies & may not actually use it on what it was given to them for - no guarantee of success

Answer 21

- AS/AD diagram (shows an increase in exports and decrease in price) - LRAS/AD diagram (shows an increase in exports and decrease in price) - PPF diagram (shows the opportunity cost)

Answer 22

- AS/AD diagram (shows an increase in exports and decrease in price) - LRAS/AD diagram (shows an increase in exports and decrease in price) - PPF diagram (shows the opportunity cost)

Answer 23

- conflict of objectives - cause of the current account deficit - time lags/cost - is the current account deficit actually a problem? (it isn’t sustainable over time if the deficit as a % or GDP > real GDP)

Answer 24

The interdependence of world economies for trade (includes people, products, services, and ideas)

Answer 25

- technological advances - trade liberalization - economic liberalization - transport infrastructure - financial integration - multinational corporations - political stability

Answer 26

- access to a wider variety of goods/services - more education opportunities for developing countries - scientific research is carried out by a larger community of people - more international cooperation in regards to controlling global warming - lower production costs of products, passed onto consumers as lower prices - greater cultural exchange

Answer 27

- Coca-cola - Starbucks - Nike - Gap - Google - Mcdonals

Answer 28

- Brazil - Russia - India - China - Nigeria - Saudi Arabia

Answer 29

Globalisation has and will allow them to trade across larger distances and with more countries, which will expand trade volume and lead to more modern financial institutions

Answer 30

Employment may increase for skilled workers but decrease for unskilled workers. Employment may increase because there are more firms and trade. Employment may decrease because there are more people fighting for limited jobs.

Answer 31

Minimum wage may increase as firms need to give offer a more competitive wage

Answer 32

May increase due to the increase in the number of firms and amount of trade which means more goods/services are on offer. There is also economies of scale for the firms so a lower price for consumers.

Answer 33

May increase because the UK specialises in producing high-quality goods. However, the inequality gap may increase, and the UK industry becomes dependent on the area it is specialised in.

Answer 34

More firms are happy to move to the UK and operate here. However, if lots of UK firms are happy producing in other countries, there may be an increase in unemployment.

Answer 35

Increase in concerns as more is being produced to be traded.

Answer 36

- economic growth - income inequality

Answer 37

- reduced control - policy coordination

Answer 38

- access to markets - consumer choices

Answer 39

- job opportunities - labour standards

Answer 40

- environmental degradation (resource extraction & pollution) - growing emphasis on sustainable practices

Answer 41

- high incomes abroad - low incomes at home - weak exchange rate (WIDEC)

Answer 42

- low inflation rate at home - low unit labour costs - low minimum wage - weak trade unions - strong investment at home - new resources - gains in comparative advantage

Answer 43

- increase in (X-M) —> increase in AD —> increase in growth —> decrease in unemployment —> increase in inflation - appreciation of exchange rate - financial account deficit - can harm international relations - sign of an unbalanced economy

Answer 44

- fixed - managed-floating (dirty float) - free-floating

Answer 45

A system in which the value of one currency is tied to another, a basket of currencies, or another measure of value, such as gold

Answer 46

A system that allows a nation's central bank to intervene regularly in foreign exchange markets to change the value of the currency to meet specific macroeconomic objectives

Answer 47

A system that occurs when a government allows the exchange rate to be determined purely by market forces and there is no attempt to ask the central bank to influence the external value of the exchange rate

Answer 48

Free-floating (since 1992)

Answer 49

- Qatar - Saudi Arabia - Panama - Iraq - Hong Kong

Answer 50

- China - Costa Rica - Brazil - South Korea - New Zealand

Answer 51

- UK - Australia - Mexico - Poland - USA

Answer 52

An increase in the value of an exchange rate (floating exchange rate systems)

Answer 53

A decrease in the value of exchange rate (floating exchange rate systems)

Answer 54

Fixed exchange rate currency system

Answer 55

Free-floating and managed-floating exchange rate systems

Answer 56

- crawling peg (the value of currency is adjusted gradually over time, done usually to keep the currency's value in line with inflation) - fixed peg (the value of the currency is fixed at a specific rate and is not allowed to fluctuate)

Answer 57

- reinforcing gains in comparative advantage - trade and investment - some flexibility permitted - reduction in the costs of currency hedging - disciplines on domestic producers

Answer 58

- it provides greater certainty for businesses and investors, as they know exactly how much their currency is worth in other currencies - they can help to stabilise the economy, as they make it more difficult for the value of the currency to fluctuate wildly - they can help to promote trade, as businesses are more likely to trade with countries that have a fixed exchange rate

Answer 59

- they can make it difficult for the government to use monetary policy to manage the economy - they can make the economy more vulnerable to shocks, as a sudden change in the value of the pegged currency can have a significant impact on the economy - they can be difficult to maintain, as they require the government to intervene in the foreign exchange market to keep the currency's value at the desired level

Answer 60

The central bank might attempt to either: bring about a depreciation to: - improve the balance of trade - reduce the risk of a deflationary recession - rebalanced the economy Or bring about an appreciation of the currency to: - curb demand-pull inflationary pressures - reduce the prices of imported capital and technology or essential inputs to enhance long run growth potential

Answer 61

- requires large-scale foreign exchange reserves - many smaller and relatively poorer countries do not have these - central banks intervening on their own may have little or no market power against the sheer weight of speculative buying and selling in global currency markets - changing the interest rates ro I fluency a currency might conflict against the other macroeconomics objectives - raising interest rates to support a currency might stifle growth - the J-curve - the martial-lerner condition - may be inflationary

Answer 62

- a fall in the value of exports --> reduced demand for £s --> currency depreciation - a rise in spending on imports --> increased supply of £s --> currency depreciation - the BofE raising interest rates --> inflow of hot money into UK banks --> increased demand for sterling among speculators --> currency appreciation

Answer 63

- relative unit labour costs (compare the cost of labour in one country to another) - relative export prices (compare the prices of a country's exports to those of its competitors)

Answer 64

- cost factors - quality and innovation - infrastructure and logistics - government policies

Answer 65

- increased exports - job creation - higher standards of living - foreign direct investment (FDI)

Answer 66

- trade deficits - economic decline - unemployment - income inequality

Answer 67

- capital expenditure - refers to government spending on long-term investments and assets that are expected to provide benefits over multiple years. - current expenditure - consists of day-to-day government spending on recurring items, such as salaries, maintenance, and operational costs. - transfer payments - government payments made to individuals or groups without any expectation of goods or services in return.

Answer 68

- economic conditions - government priorities - demographics - political ideologies

Answer 69

A measure of a country's purchasing power for imports relative to exports. It tells you the amount of imports a country's can buy for each unit of exports.

Answer 70

- improvement - when a country's export prices increase relative to its import prices. - deterioration - when a country's import prices increase relative to its export prices.

Answer 71

(index of export prices / index of import prices) x 100 = TOT

Answer 72

- exchange rate - commodity prices - added value - inflation rates - productivity - technology

Answer 73

Usually groups of countries in specific regions that manage and promote trade activities. Trading blocs lead to trade liberalisation (the freeing of trade from protectionist measures) and trade creation between members, since they are treated favourably in comparison to non-members.

Answer 74

- free trade areas (FTAs) - customs unions - common markets - monetary union

Answer 75

A free trade area is a bloc in which countries agree to abolish trade restrictions between themselves but maintain their own restrictions with other countries e.g. Canada–United States–Mexico Agreement (CUSMA)

Answer 76

A customs union is an agreement between countries in which all goods/services produced by members are traded tariff free. Additionally, countries agree on common tariff rates on imports from all external (third-party) countries e.g. the European Union (also a common market)

Answer 77

Similarly, to a customs union, goods/services are traded tariff-free in common markets Additionally, the four factors of production flow freely between member countries The goal is to improve the allocation of resources between the common market members and lower the costs of production e.g. the European Union (also a customs union)

Answer 78

A monetary union takes integration a step further. Members enjoy all of the benefits of a customs union and common market, but then also establish a common central bank which issues a common currency and controls the monetary policy of member countries e.g. the European Monetary Union

Answer 79

- productivity and growth - living standards - crowding out - level of taxation - equality

Answer 80

POPSICLE: - price - output - profits - structure of market - inefficiency - competition - labour market - externalities

Answer 81

DIGESTIF: - development - inflation - growth - employment - structure of economy - trade - inequality - fiscal balance

Answer 82

When the government pays back interest on the debt

Answer 83

The interest paid on the National debt

Answer 84

Current government expenditure = general government final consumption + debt

Answer 85

Excessive government spending can lead to an increase in government borrowing which raises interest rates, potentially reducing private sector investment and economic growth.

Answer 86

In the 70s/80s to lower the high interest rates (17-18%)

Answer 87

- if the government runs a big budget deficit, it will have to sell debt - getting institutions to purchase debt may require higher interest rates - a rise in interest rates may then crowd-out private investment and consumption - eventually higher government spending needs to be funded by higher taxes - this squeezes spending and investment by the private sector - a fiscal stimulus is therefore less effective in an expansion - at full capacity, an increase in public demand crowds out private demand - leaving output unchanged (with higher prices)

Answer 88

- the probability of 100% crowding out is remote, especially if the economy is operating below its capacity and if there is a plentiful supply of saving available to purchase newly issued state debt - Keynesian economists argue that fiscal deficits crowd-in private sector investment - well-targeted, timely, and temporary increases in government spending can absorb under-utilised capacity and also provide a strong multiplier effect that generates extra tax revenue - the available supply of loanable funds is not limited to domestic sources, external finance is available from other countries

Answer 89

It is a Keynesian economic theory that suggests that an increase in government spending can lead to an increase in private investment. The theory argues that higher government spending can stimulate economic activity and create a more favourable macro-economic environment for private capital investment. The idea behind crowding in is that government spending can boost aggregate demand (C+I+G+X-M) which can lead to increased real economic growth, higher employment and higher real incomes. This, in turn, can increase consumer and business confidence (an improvement in animal spirits) leading to increased private investment in new projects and businesses.

Answer 90

- majority of the debt is held by the government’s own bank, the BoE - interest rates are low (1%) - finance is available overseas because people from abroad are willing to buy the bonds)

Answer 91

- increased confidence - more jobs - the multiplier effect (MPC) - spending on targeted infrastructure

Answer 92

- increased prices (inflationary) - may limit expansionary policy in the future if it gets too large - decreased economic growth - crowding-out - default payments - increased taxes - increased unemployment

Answer 93

The free movement of goods, services, capital and labour

Answer 94

Common laws on Employment Law and Consumer Law

Answer 95

Once you pass the Quality Standards in one country, you’ve passed them in all 27

Answer 96

Money that is used for structural projects in the EU (roads, schools etc)

Answer 97

Grants and subsidies for farming

Answer 98

Customs union and common market and economic union

Answer 99

Protecting your domestic markets from foreign goods + services

Answer 100

Taxes on imports

Answer 101

A physical limit governments impose on trade

Answer 102

A ban placed on the importation or exportation of goods/services or currency to another state

Answer 103

A payment from the government to a producer to lower their costs of production and encourage them to produce more

Answer 104

Established benchmarks and guidelines that ensure the consistency and safety of products + services across various industries

Answer 105

Excessive regulations and administrative processes

Answer 106

Reduce consumption of foreign goods Increase production of domestic goods

Answer 107

Are automatic fiscal changes as the economy moves through stages of the business cycle – e.g. a fall in tax revenues from the circular flow during a recession or an increase in state welfare benefits when unemployment is rising. This leads to a surplus in the fiscal balance to prevent the economy from growing too quickly and "over-heating"

Answer 108

Involves deliberate changes in government expenditure and taxes with the intention of influencing aggregate demand. Eg. furlow scheme in Covid

Answer 109

Actual deficit = cyclical deficit + structural deficit

Answer 110

The size of the fiscal deficit is influenced by the state of the economy: in a boom, tax receipts are relatively high and spending on unemployment benefit is low.

Answer 111

Part of the deficit which is not related to the state of the economy. This part of the fiscal deficit will not disappear when the economy recovers. A structural factor might be the long-term effects of an ageing population or perhaps the underlying level of personal and corporate tax avoidance.

Answer 112

- makes foreign goods cheaper and more competitive - impact on AD as domestic consumption-demand decreases

Answer 113

For: - protect domestic goods - protect new industry - government revenue Against: - loss of economic welfare - rewards production inefficiencies - trade wars - damages global economy

Answer 114

Debt interest

Answer 115

- unseen events - debt interest - structural deficit - cyclical deficit

Answer 116

- depends on GDP figures + the rate of change of GDP - depends if GDP is increasing or decreasing - depends on the state of the economy - national + private debt

Answer 117

- income tax - 25.6% - NIC - 16.4% - VAT - 15.5% - company taxes - 9.5% - council tax & business rates - 7.0%

Answer 118

The marginal rate of tax rises as income rises E.g. income tax

Answer 119

The marginal rate of tax is constant, leading to a constant average rate of tax E.g. NICs

Answer 120

The marginal rate of tax falls as income rises E.g. excise duties on tobacco & alcohol

Answer 121

A phenomenon that occurs when inflation pushes taxpayers into higher income tax brackets, resulting in higher tax payments.

Answer 122

- fairness - certainty - convenience - efficiency

Answer 123

The burden should be proportional to the ability to pay and there should be a low cost of collection

Answer 124

Politically-based

Answer 125

For: - open trade deals back, in return - more choice and variety for consumers - encourages domestic firms to be more efficient, innovative and competitive - increases the supply - lower prices due to (EoS) which could be deflationary - more affordable for low-income groups due to the cheaper prices Against: - may be worse quality (inferior goods) for the consumers (may be bad for them) - smaller firms can’t compete with the lower prices - worse animal welfare regulations and environmental impact (air miles, fertilisers, deforestation)

Answer 126

Y-axis - total tax revenue collected X-axis - tax rate (%) Under certain circumstances (before the optimum), lifting the tax rate may lead to a reduction in tax revenue. On the other hand (after the optimum), a reduction in tax rate may lead to an increase in revenue because more people are willing to work.

Answer 127

Government’s debt

Answer 128

- increased rates of tax avoidance - greater incentive to seek out tax relief, make max use of tax allowances - greater incentive to evade taxes (illegal) - i.e. non–declaration of income and wealth - possible disincentives in the labour market - depending on which taxes have been increased - ‘brain drain’ effects - the loss of highly skilled and innovative people which means fewer high-income taxpayers

Answer 129

- lower tax rates on higher income earners - lower top rate taxes might increase income inequality - little strong evidence that top rate income tax is a major barrier to inward migration of skilled labour - many people are on fixed hours / zero hours contracts - so tax rates have little bearing on work incentives - tax rates not the only factor affecting work incentives - we must also consider the impact of the benefits system - for some people, tax cuts - cause them to take more leisure time instead of work - a backward bending labour supply curve effect (especially at higher wages/earnings) - there is a solid Keynesian explanation for some aspects of the Laffer Curve - cuts in direct and indirect taxes increase real disposable income and therefore lead to higher consumer spending and aggregate demand

Answer 130

- firms will have more profit to reinvest into their companies, therefore increasing investment, aggregate demand, and therefore output - consumers have higher disposable income so consumption will increase - greater injections into the circular flow of income - fewer withdrawals form the circular flow of income - relevant AD/AS diagram illustrating an increase in AD - increase in size of multiplier - less incentive for tax evasion/avoidance

Answer 131

- firms may not reinvest money, many other factors affect investment decisions- e.g. confidence - consumers may save any extra disposable income, thus withdrawing it from the circular flow of income - likely to result in higher government debt leading to increased crowding out - the Government will have less money to spend on infrastructure/education etc. that may negatively affect economic growth

Answer 132

Taxes on individuals and/or corporations E.g. income tax & corporation tax

Answer 133

Taxes on goods & services E.g. VAT

Answer 134

A rise in income tax for people on high incomes can lead to a more equal distribution of income, as people with high incomes will receive a smaller share of overall income. Evaluation: The impact of a rise in income tax on income distribution will depend on the size of the tax increase and the distribution of income in the economy. In general, the greater the tax increase, the greater the reduction in income inequality.

Answer 135

Output - decreases Employment - decreases Price level - decreases

Answer 136

Better trade balance because: Imports decrease (less disposable income) Exports increase (lower price level and therefore domestic firms may be more competitive)

Answer 137

Investment may increase if taxes such as corporation or NICs decrease

Answer 138

The laffer curve - a reduction in tax rate may lead to an increase in revenue because more people are willing to work (if past the optimum tax rate)

Answer 139

The government needs to pay back high debts which shows economic uncertainty - FDI may hold off investing until the tax rate lowers

Answer 140

Unfairer distributions

Answer 141

Fairer distributions

Answer 142

Measure people whose income is below 60% of the UK median incomes (<60% of £35,000)

Answer 143

Measures people whose income is below what is socially acceptable as a minimum living standard (£2/day)

Answer 144

- Kingston upon Hull - Hull - Middlesbrough - Liverpool - Burnley - Manchester - Blackpool - Great Yarmouth - Jaywick (Essex)

Answer 145

- deindustrialisation - geography (i.e. the North has less investment, seaside towns have fewer places to trade with) - lack of employment opportunities - lack of public goods (education, healthcare) - low-paid jobs - lack of skilled workers - little to no savings - the poverty cycle/generational poverty - young people leave the area as soon as they can - a benefits culture - fewer transport links

Answer 146

- cost to government (welfare payments, opportunity cost, public services) - smaller workforce when people have to be off work, ill (earlier age of death) - crime & drugs

Answer 147

- increase facilities - increase salaries in areas of poverty to attract workers who would otherwise choose other places - lower childcare costs - build affordable homes - higher minimum wage - increasing employment opportunities - improve access to good quality education and skills training - invest in the NHS and education

Answer 148

Public - the government & public corporations Private - individuals (private households & businesses)

Answer 149

- interest payments become so large and take up a lot of the budget - low confidence - crowding-out of private sector investment spending - may have to increase taxes to pay back the debt - structural deficit will get worse as an ageing population places greater strain on pension liabilities - potential of rising interest rates as markets become more reluctant to lend the UK government money

Answer 150

- potential negative impact in the exchange rate - a rapid increase in national debt means the government has to borrow more from the private sector - if borrowing is high/unmanageable, then investors won't want to hold UK government bonds. They will invest abroad instead. - lower confidence - unsustainable in the long-term - burden on people have to pay for it

Answer 151

~12-13 years

Answer 152

- increase taxes - increase domestic supply/production & decrease imports - privatisation - depreciation policies - expansionary policies - monetary policy (lower interest rates to boost economic growth) - efficiency policies in the public sector - decrease spending - decrease tax avoidance & evasion

Answer 153

- government borrowing is required to fund investments in critical infrastructure (supply side) - severe external shocks make an increase in the National debt inevitable - rational to borrow to invest when the market bond yields are very low - the bonds remain attractive to overseas investors - borrowing to stimulate the economy can be partly self-financing (BoE) via higher tax revenues - modern monetary theory (MMT)

Answer 154

- unemployment - addiction - domestic violence - family breakdowns - rising rents & cost of living - discrimination - systematic inequality - poor mental health - childhood poverty or childhood trauma (care) - no support network - language barriers

Answer 155

- provide affordable housing - build social rented homes - assistance for the most vulnerable - increasing employment & income - investment in welfare support

Answer 156

States that investment, saving and technological change are required in an economy for economic growth. The rate of growth increases if the savings ratio increases. This leads to increased investment and technological progress, which leads to higher productivity.

Answer 157

When a nation is over dependent on a primary product (oil, metals, gold, coffee, etc) for economic output and government revenue

Answer 158

- lowers consumer confidence so fewer people invest - no incentive to become an entrepreneur - less money to be spent on public goods (healthcare, education, etc) - hard to change it

Answer 159

- source of government revenue - encourages supply side investment - attracts in FDI - creates jobs - fund long-term development

Answer 160

- volatile prices - lack of whole economy investment - only benefits the minority

Answer 161

- a term that broadly refers to the harmful consequences of large increases in a country's income - an economic phenomenon where the rapid development of one sector of the economy (particularly natural resources) precipitated a decline in other sectors - it is often characterised by a substantial appreciation of the domestic currency (strengthens it)

Answer 162

£2.8 trillion

Answer 163

£127.5 billion

Answer 164

- it must be paid, which might squeeze out the chances for extra spending (opportunity cost) - harder for the government to cut personal taxes - rising inflation will increase debt interest since many of the UK bonds issued are "index-linked" - higher interest rates will also increase the debt service burden - 1/3rd of the UK government debt is owed to the BofE through QE - which is recirculated to the Treasury

Answer 165

1. The central bank (BoE) creates new money electronically to make large purchases of assets from the private sector. 2. In nearly all cases, these asset purchases have been of government bonds bought from pension funds and high-street commercial banks. 3. Increased demand for government bonds causes an increase in the market price of bonds and therefore causes their price to rise. 4. A higher bond price causes a fall in the yield on a bond (there is an inverse relationship between bond prices and yields). 5. Those who have sold their bonds may use the funds to buy assets with relatively higher yields such as shares of listed businesses and corporate bonds. 6. Commercial banks receive cash from asset purchases and this increases their liquidity. This in turn may encourage them to lend out to customers which will - hopefully - help to stimulate an increased in loan-financed capital investment

Answer 166

- liquidity trap - existing debt - hard to measure - people from abroad or with a low MPC buy the bonds - little impact on UK economy

Answer 167

- gives central banks an extra tool of monetary policy besides changing interest rates - increasing the size of the monetary vase helps to lower the threat of price deflation. Without QE, the fall in real GDP would have been deeper, and the rise in unemployment greater - lower long-term interest rates have kept business confidence higher and given the commercial banking system extra deposits to use for lending - QE can lead to a depreciation of the exchange rate, which will help to improve the price competitiveness of export industries

Answer 168

It Illustrates the distribution of income (or wealth). It shows the cumulative share of income from different deciles of the population. If there was perfect equality, then the poorest 20% of the population would gain 20% of total income. The poorest 50% of the population would get 50% of income. Income would fall the line of perfect equality. In reality, income is skewed towards the richer deciles among the population.

Answer 169

- wealth effect - borrowing cost effect - lending effect - currency effect

Answer 170

- may contribute to rising wealth inequality due to surging house prices and rents - increase in the monetary base (money supply) may lead to inflationary pressure - ultra-low interest rates can distort the allocation of capital and also keep zombie companies alive - low interest rates reduce the annual incomes from pension funds, making life tougher for those with savings and who rely on their occupational pension

Answer 171

- improve incentives to work & invest in people’s skills (human capital) - increase labour & capital productivity - increase occupational & geographical mobility of labour - increase capital investment & research and development spending - promote contestability & stimulate innovation (dynamic efficiency) - encourage start-ups & expansion of new businesses especially those with significant export potential/ promote economic diversification - improve price & non-price competitiveness in global markets - improve the trend rate of sustainable growth of real GDP to help support improved living standards & better regional economic balance

Answer 172

- low R&D spending - low investment - skill shortages - economic inactivity - low labour mobility - ageing infrastructure - regional economic imbalances - productivity gap

Answer 173

- privatisation - Royal Mail in 2016 - deregulation of the UK retail energy market - super-deduction tax incentive for business capital investment (125% tax allowance) - funding for rollout of electric vehicle charging infrastructure

Answer 174

- tax cuts - cutting red tape - privatisation & liberalisation - free trade & capital mobility across boarders - flexible labour markets - deregulation of markets

Answer 175

- tax cuts - deregulation - trade liberalisation - intellectual property protection

Answer 176

- income inequality - reduced social safety nets - underinvestment in public goods - market failure - financial instability

Answer 177

- invest in R&D - encourage FDI - invest in education/healthcare - subsidies to businesses

Answer 178

X-axis - ‘% of population’ Y-axis - ‘% of income’

Answer 179

A - the gap between the line of equality (45°) and the country’s Lorenz curve B - the space outside the Lorenz curve that is below the line of equality

Answer 180

A / (A + B) = Gini co-efficient

Answer 181

A model outlining the development from a traditional economy to an industrialized one. Arthur Lewis put forward a development model of a dualistic economy, consisting of rural agricultural and urban manufacturing sectors Initially, the majority of labour is employed upon the land, which is a fixed resource. Labour is a variable resource and, as more labour is put to work on the land, diminishing marginal returns eventually set in: there may be insufficient tasks for the marginal worker to undertake, resulting in reduced marginal product (output produced by an additional worker) and underemployment. Urban workers, engaged in manufacturing, tend to produce a higher value of output than their agricultural counterparts. The resultant higher urban wages (Lewis stated that a 30% premium was required) might therefore tempt surplus agricultural workers to migrate to cities and engage in manufacturing activity. High urban profits would encourage firms to expand and hence result in further rural-urban migration.

Answer 182

- better use of labour (more productive) - greater value of output & quicker to grow economy when using technology - land is a fixed resource (diminishing marginal returns) - higher urban wages which is then spend in the economy - decreases inequality - encourages FDI - achieves macroeconomic objectives

Answer 183

- may lead to a surplus amount of labour in cities so the unemployment rate increases - profits may be retained by capitalist entrepreneurs at the workers expense - may be hard for workers to move from the countryside to the cities - expensive to train the new workers - relies of FDI - creates inequality in the cities

Answer 184

- tight fiscal (increase taxes & lower government spending) - loose monetary (decrease interest rates) - decrease subsidies - privatisation - increase exports (weaker £ means goods are more competitive) - decrease union power so wages can be lower or increase minimum wage to increase consumption

Answer 185

- loose fiscal (decrease taxes & increase government spending) - loose monetary (decrease interest rates) - increase the minimum wage - encourage investment in R&D - invest in education & training - increase the number of job opportunities

Answer 186

GDP Revenue Gifted individuals Bribery corruption Tax avoidance Power of the firms

Answer 187

The practice of determining the price at which goods or services are bought and sold between related companies, such as subsidiaries of the same multinational corporation operating in different countries.

Answer 188

Foreign direct investment - when a global firm sets up a factory or makes an ownership investment in another country

Answer 189

- job reliance - unsustainable practises that impact on the environment - subsidies are an opportunity cost (loss of entrepreneurial opportunities) - displacement of local businesses - profit taken away from the country (remittances) - politcal/cultural effects - tax avoidance - big firm benefits from EoS which is unfair to local businesses - workers move from local businesses/farms

Answer 190

Microfinance involves borrowing small amounts of money from lenders to finance enterprises. It increases the incomes of those who borrow, and can reduce their dependency on primary products. There could be a multiplier effect from the investment of the loan. They are small loans for usually unbankable people. It allows them to break away from aid and gives borrowers financial independence. In Bangladesh, 95% of microfinance cohorts are women. Microfinance loans detach the poor from high interest, exploitative loan sharks. They could help businesses to be set up, although the money could also be spent on immediate consumption, rather than investment. Since the money goes directly to SMEs, it can stimulate employment. However, the data collected on microfinance loans might not be reliable if there is dishonesty regarding where the money was spent. In Tamil Nadu, India, less than 2% of microenterprises were still operating after their establishment. Microfinance loans have high repayment rates.

Answer 191

- improves infrastructure - job creation - diversify the economy - tax revenue - increased spending - boosts national esteem

Answer 192

- leakage - displacement effect - enclave tourism - no benefit to locals - high cost of infrastructure - increases prices for locals - economic dependence - seasonal character of jobs - congestion - introduction of "international brands" - increased national debt

Answer 193

Any form of assistance by one country or multilateral institution to another

Answer 194

- military - financial - capital - voluntary

Answer 195

- develops good relationships between countries (trade agreements) - it's a moral thing to do (comes with a good reputation) - hopefully other counties will help us in return when we're in need - it's better to have friends than to have enemies - international security (less likely to go to war against them)

Answer 196

- Harod-Domar model - needs some savings to increase economic growth - trade links in the future - emergency/life-saving help - shown how to help themselves - don't have to earn or borrow the money first (makes it quicker) - allows for heavy spending on the supply side

Answer 197

- the government isn't held accountable - it only helps in the short-term (need structural change) - it's better for the government to raise the capital themselves through international bonds and stocks - makes the country receiving the aid too dependent - there is still low economic growth so little job opportunities - if the government is corrupt, they may keep the money for themselves

Answer 198

"Heavily indebted poor countries" Initiated by the World Bank. It involves cancelling the debt of developing countries.

Answer 199

- establish a further track record of good performance - successfully implement key reforms agreed to at the decision point - adopt and implement its PRSP for at least one year

Answer 200

- the country has a "new start" - can invest in infrastructure - additional money can be spent on the poor to tackle poverty - reduces the demand/reliance on humanitarian & development assistance from abroad - enables wealthy nations to use their recourses for other purposes - frees up public funds - the country can become trading partners (with the UK)

Answer 201

- undemocratic - no legal obligation to cancel the debt - years & years of negotiations before plans can even start to be undertaken - criteria, like privatisation, increase inequality

Answer 202

A method of "controlling" the price of volatile commodities (e.g. sugar, coffee, wheat etc)

Answer 203

- decrease in AD and economic growth - increase in government spending (opportunity cost) - lower employment - inflationary effects - damage the balance of payments (fewer exports) - worsen dynamic efficiency - less money for firms to reinvest (into R&D) - less disposable income (higher prices) - coffee shortages - supply chain effects (ie. cafes) - less tax revenue for the government - makes the domestic currency weaker

Answer 204

Too much coffee = buy some coffee band store it Not enough coffee = release some coffee from storage

Answer 205

- means a balanced/controlled price - farmers are more likely tobe in profit - improves dynamic efficiency - increased confidence (farmers can plan further ahead and consumers are more likely to buy the commodity) - increases AD and economic growth - makes the price more competitive

Answer 206

- creates a false sense of security/distorts the price - not suitable in the long-term - asymmetric information in the market (means the government doesn't know how much to change the supply by) - opportunity cost - expensive to run buffer stocks and to buy off the market

Answer 207

It has a mission to end extreme poverty and boost shared prosperity on a livable planet

Answer 208

The international monetary fund - supports economic policies that promote financial stability and monetary cooperation

Answer 209

Non-governmental organisations - try to help people who are suffering from social injustice directly by providing food, clothes, shelter, medicine, etc. in areas that are in most need. They also try to prevent social injustice.

Answer 210

“Fairtrade is about better prices, safe working conditions, local sustainability and fair terms of trade for farmers and workers”

Answer 211

- bananas - chocolate - coffee - cotton - flowers - gold - cold drinks & juice - tea - sugar, spreads & oils - wine & beers - vanilla & spices - fruit & vegetables - nuts & dried fruits - beauty & wellness

Answer 212

- Lidl - Aldi - M&S - Waitrose - coop - Ocado - Sainsbury’s - clipper tea’s - Ben & Jerry’s

Answer 213

- fairer prices no matter what (ie. No matter the weather and yield) - farmers receive more so can invest more - higher dynamic efficiency & productivity - increased economic growth

Answer 214

- future-proofs their supply-chain - FT is well trusted & reputable amongst consumers - shows commitment to sustainable trade - firms can feel proud to help the farmers - public support - firms can gain insights on the ground and be one step ahead

Answer 215

- only benefits a small number of farmers - farmers must be FT certified first (which is expensive) - it is argued that the FT price is agreed too far in advance (the farmers could’ve received more money)

Answer 216

- a method of "controlling" the price of volatile commodities (e.g. sugar, coffee, wheat etc.)

Answer 217

- decrease in AD amd economic growth - decrease in government spending (opportunity cost) - lower employment - inflationary effects - damage to the balance of payments (fewer exports) - worsen dynamic efficiency - less money for firms to reinvest in R & D - less disposable income (higher prices) - coffee shortages (supply chain effects like coffee shops) - less tax revenue for the government - makes the domestic currency weaker

Answer 218

Too much coffee = buy some coffee off the market and store it (increase price) Not enough coffee = release some coffee onto the market from their stores (lower price)

Answer 219

- it allows the government to control supply and therefore the price remains stable - farmers are more likely to plan in advance due to increased confidence - an increase in consumer confidence as consumers are more likely to be charged a reasonable price - increases AD and economic growth - can make the price more competitive

Answer 220

- creates a false sense of security/distorts the price - not suitable long-term - there may be asymmetric information on the market so the government doesn't actually know how much to change the supply by - opportunity cost - it is expensive to run and to but off the market

Answer 221

An international financial institution that provides loans to countries of the world for capital programs

Answer 222

- provide grants and low interest loans - offers policy advice and technical assistance to developing countries - co-ordinates projects with governments - reduce poverty across the world

Answer 223

- argument that the repayments actually worsen poverty levels - the country may become too reliant on aid - the World Bank is often blamed for being corrupt and undemocratic - environment issues - limits the number of countries that can be helped due to the strict criteria they have to meet - focuses too much on growth of GDP, and not enough on living standards - gives money to some corrupt countries/governments

Answer 224

Provide vital emergency aid such as healthcare, resources, education, infrastructure .e.t.c. to alleviate suffering. They are independent of governments although they can receive grants/funding from them. They remain neutral and don’t “take sides” to ensure their and the people they’re helping’s safety. It also means they can travel through countries to wherever the aid is needed.

Answer 225

It allows them to save their own money and resources by letting others do the work for them. NGOs are experts in what they do (aid) and can often act as mediators (i.e. in prisoner releases)

Answer 226

- experienced - no political agenda - they help the poorest of the poor

Answer 227

- NGOs provide a small amount compared to the UN, World Bank, and the governments - could be patronising - unelected

Answer 228

- lenders - forward markets - market for equities - facilitate exchange of goods & services

Answer 229

- asymmetric information - moral hazard - externalities - speculation & bubbles - market rigging

Answer 230

Refers to the illegal practice of manipulating financial markets for personal gain

Answer 231

Refers to the tendency of individuals or institutions to take on more risk when they are insulated from the potential consequences of their actions

Answer 232

- monetary policy - loan money - ensure stability of the banking system - lend of the last resort (for both banks & governments)

Answer 233

- to prevent reckless behaviour & insolvency - keeps financial markets working as we need them to

Answer 234

- financial policy committee (FPC) - prudential regulations authority (PRA) - financial conduct authority (FCA)

Answer 235

- regulatory capture - cost of regulations - reduces ability of new firms to enter the market - is it truly in the interest of banks to misbehave?

Answer 236

Loans money (for day-to-day spending) to countries with a financial crisis to help them deal with BofP issues and stabilise their economy (which stabilises their currency). They provide economic surveillance and advice too.

Answer 237

- war - natural disasters - corruption - an overbloated public sector - too many people on pensions/benefits/other welfare payments - borrowing cheaply - spending too much during the good times - speculating - the external environment - assuming economic growth

Answer 238

- lend an emergency loan (which is funded by its members) in return for sorting yourself out - cut spending - raise taxes - economic surveillance & advice - the money has to be repaid in the end

Answer 239

- some countries let their IMF loans remain outstanding longer than originally agreed - usually results from a protracted crisis, making timely repayments difficult - conditions of loans - cut pensions, increase income taxes etc - privatisation - private monopolies - moral hazard - cam just get bailed-out - democracy - the IMF isn't democratically elected

Answer 240

- political stability - advanced education - good infrastructure - access to business finance - income equality - demographic factors - savings, foreign aid, and levels of national debt

Answer 241

- diseconomies of scale - lack of new entrepreneurs - export dependant