Things To Know P2 Flashcards
Exchange controls
Governemnet imposed limitations on purchase and or sale of currencies to avoid exchange rate volatility
Seen european conuntries post ww2
Limit foriegn investment in counrties too
May ban use of particular foriegn currency or fixed exchange rate
Competition policy
Deregulation, privatisation
Extend market forces witin an economy
Eg thatcher privatised steel and telecoms
Companies motivated to make profit and aso iincrease efficiency
Creation flexible labour markets- supply side e
Decrease tu power
Increase temp and part time contracts
Increase educationa nd training- apprenticeship levy to increase occupational mobility and decrease structural unemp
Eval regional policy
Expensive st
Years to rejevenate area
Barriers to occupational mobility
Cost and duration of education and training- doctor
Lack of ability and sucess= lack of personal attributes- fotballer
Legal barriers- women in afghanisatn, criminal record diff to be a teacher
Discrim- social castes inin dia
Geographical mobility barrierds
lack accest o or oct transport
—cost relocating
-family ties
-lang barriers
-discrim in some areas
Cost of unemp
waste of human resources- econ inefficinecy lower gdp
High cost of welfare ben- increase gov borriwng
Low tax rev
Social cost- increase family breakdown
Ncrease crime- incrrease cost policing, prisons
Socila cots of poor health- depression drug and alchool use
Possible eocn costs of deflation
Holding back on spending
Debts increase
Real cost of borrowing increase
Lower pfoit margins
Confidence and saving
Lower profit margnins- possible econ cost of delfation
unless costs fall further than prices to consumers
Can lead to high unemp as firms seek to reduce their costs
Weaker profit margins, have neg effect on stock markets due to a fall in expected profits and dividens to shareholders
High unemp could lead to decrease ad and recession
Qe how does it work
hoped with extra cash, retail banks lend out extra funds to consumer and busninesses increasing ad
-if bonds pruchased, prices increase, decrease yield on bonds, decrease ir, increase borrowing, spneding on consumer and cpaital goods
-fifnancial institutions use omoney to buy equities- shares in companies ando ther financial assest- increase demand in shares and financial assets, eg increas eprices as profts incrrease wealth efect mean spread more, if increase ad firms spend more on investment, inject to circular flow of income increasng ad
Eval qe retail banks lending to consumer and firms
In deep recession, confiedence low, wealthy bansk sturggle to lend out
Malign deflation consumers and firms hoard rather than invest cash- liquidity trap
Eval qe lwo ir as bonds purchased
Consumer wealth and insecurity of jobs may mean low interest rates not borrow- ad not increasing
Eval qe wealthe ffect as shares pruchased more by bank,
Increase value
Inequality may increase as increase price assets
Danger creating asset bubbles which v fragile and may burst if economic shock or collapse in confidence- send back into recession
Limitations fiscal policy for deflation
Increase national debats and interest payments on debt if fiscal expansionst packages too large- long term repayments
Decrease consumer confidence
Reducing impact any fiscal stimulation
Lower taxes and increased public spending may stoke up inflationary pressure if appluied for too long- limited evidence
Increase disposible income- saved or spent imports- limited impact ad
Tax cuts/public workers seen as temporary- confidence low
Extra income tend to be used to repay debt or restore confidence
Households may see this as a priority rather than fuelling increase in consumptin
Impact of inflation on business
Creates unpredictabiility
Accelerating inflation- cash flow problems
Increase interest rates
Increase meny costs
Export decrease competituve adv
Impact of inflation on poeple
Fixed incomes
Workers little industrial muscle
Interest rates not in line with inflation
Fiscal drag
Shoe leather costs
Factors determine nairu
Level technological developmen of indurties, quality of infrasturcture, competiveness of business on demoestic and international markets
Skills workers- occupational mobilitity and structural unemployment
Replacment ratio- voluntary unemployment
Monetarists- lrpc verticle
No stabletrade off between unemp and inflation in lr
Gov spending ncreases, decreases unemp, increase prices as ad increase
Ad increase prices increaee emp, higher moneywages, decrease boluntary unemp
Newly employed lab suffer money illusion believe financially better off in emp, as mney wage sincrease
Quit jobs realise not better off in emp- inflation
Unemp returns niaru higher price level
Trend growth rate
Rate at which output can grow on a sustained basis, without putting upward or downward pressure on inflation
Reflects annual average percentage increase in productive capacity of econ
Main objectives of uk tax system
Funds gov spendng- able to borrow moeny up to a certan extent but majority must come from taxation to avoid inflationary pressure
Manage economy as a whole- macroecon performance- eg alter taxes and rates to influence econ growth , inflation, unemployment, bop
Decrease certain tax- microecon supply side benefits such as more incentives
Redistribution of iincome- fairness in society
Correct market failure- micro econ improvement workings of market, indirect taxes on demerit goods fund to decrease negative externalities
Cut vat- expansionary fiscal polciy
Hope decrease prices would encourage consuemrs to spend more on other g&s boosting ad
Cut cost in production
Eg. In 2009 lack of confidence- cut vat from 17.5 to 15%^ rather cut in direct tax
History of fiscal policy 1945-1970s
Hope decrease prices would encourage consuemrs to spend more on other g&s boosting ad
Cut cost in production
Eg. In 2009 lack of confidence- cut vat from 17.5 to 15%^ rather cut in direct tax
1979-2008 fiscal pollcu
Automiatic stabilisers not effective
Stagflation- increase unemployment, increase accelerated cost push inflation
End of 1970s- expansionary- artificiail econ growth when supply side econ (structural weakeness) unable to grwo fast enough for existing demand
Poorly judged and misused00- accelerating inflation and increase inports ‘unecessary and decrease cmpetitiveness of british businesses
2001 recession
Collapse dot com bubble and 911
Bush cut tax and increase spending-sucess
Uk econ-avoid recessioin-supply side fiscal rather expansionary fsical
Not structural deficit as capital not current spending
2010-16 fiscal
Osbourne cut budget
Austerity decrease gov spending
Cut welfare 26k to 20k max
Vat increase 17.5 to 20%
Cut local authoritie -libraries
Cut surestart scheme -intridyce more single motehrs into work with better childcare
Changes to welfare benefit system- fiscal supply side
Increase incentives find work, decrease uneemployment trap
Thatcher- increase benefits in line with inflation rather av earnings
Blair- working tax credit meant workers recieived extra benefits
Incapacity benefits decreaes for thhose deemed less sick and capable of carying on with soem sort of wokrk
Current con gov- decrease working tax credit, raise national living wage to 10.42 pounds
Taxpayer not subsidising underpaying employer
Welfare benefits combined uc- no more than 20k per year
Effectiveness supply side policies- free marketeer
No-classical
Private sector more likely to deliver technical and allocative efficiency
Concerned risk gov failure
Keynsian intervetionissm aproach supply side polciies
Market failre concern
Carefully target gov spending n merit goods and infrastructure, r&d, education and training
Lead to crowding in effect- firms attracted to areas with good infrasturcture, good controls within r&d and more skilled workforce
Neutral fiscal stance
Gov runs a balanced budget
Benign impact on level econ activity
Demand management
Influence level ad in econ
Inhibiting factors to global consistent tax
Oecd 15% corp tax
But Ie saudi arabia does not even have corpoerate tax system but instead has a tax system based on islamic principles
Erratics
Distrot monthly bop
Shaps
Ships aircraft preciosu stones
