tutor 2u review 1 Flashcards
With reference to the Harrod -Domar model explain how an injection of aid can help a developing country which is suffering from a savings gap?
The harrod Domar model explains that an economy with low GDP per capita usually has a low marginal propensity to save. Leading to low levels of business investment due to lack of funds avaibale from banks and therefore low GDP growth. Aid provides an injection which can be used to fund investment. Which can lead to faster growth of GDP, therefore breaking out of the cycle described by Harrod Domar.
Explain the difference between the roles of these two committees at the bank of england: The monetary policy compete and the finical policy commetitte.
The role of the MPC is to use monetary policy to achieve the government inflation target. The role of the FPC is to identify risks and weakness within the uk finical system. It may all banks to raise or retain more capital as a buffer in the case of a liquidity problem
With reference to the concept of the Kuznetsk curve explain how the distrubvition of income is expected to change when industrialisation of a developing country results in rising GDP per capita?
The Kuznetsk curve shows how inequality changes as an economy becomes increasingly developed. AS an economy moves from predominately primary indrusty towards secondary production, the level of GDP per capita income rises and the level of social inequality rises. Until it reaches a critical point at which the economy begins to redistrucbe income via fiscal policy and as further development occurs the level of social inequality begins to fall
Explain the impact of foregin ownership of uk assets on both the finical account and the current account of the UKs balance of payments?
The initial investment from china will be an inflow to direct investment flows in the finical account, future profits made in the uk will be sent to china and will be and outflow of primary income on the current account
Explain two roles of finical markets
To facilitate savings by business and households, providing depositor protection and rewarding savers with a rate of interest as they sacrifice their liquidity
To lend to business and individuals, for example mortgages for home buyers
To facilitate the exchange of goods and services, this relates to the key functions of money as a medium of exchange and a unit of account
To provide a market for equities, allow business to fresh equity capital
Explain how relative unit labour costs might influence ac country’s international copetivemness compared to the rest of the world?
International competitiveness means that one country exports are of lower price than another . If one country has a lower unit labour costs than another they can afford to charge a more competitive lower price
The sum of value added measured at constant prices by households, governments and industries operating in the economy. What concept has been defined?
GDP by volume
Explain the difference between a forward market in currencies and a market for equities?
A foward market for currencies is a finical market where participants can agree to buy or sell a currency at a future date. The truce us aggressed upon at the time of the contract. Curries are units of exchange used to facilitate trade between individuals and countries and are typically issued and backed by government or monetary authorise. They are used to buy and sell goods.
By contrast a market for equities involves the buying and selling of shares in companies
Equaties represent a claim to a portion of a company’s assets and profits and their prices can be influenced by a range of factors such as earnings reports and consumer confidence
forward market
A foward market for currencies is a finical market where participants can agree to buy or sell a currency at a future date. The truce us aggressed upon at the time of the contract. Curries are units of exchange used to facilitate trade between individuals and countries and are typically issued and backed by government or monetary authorise. They are used to buy and sell goods.
market for equities
By contrast a market for equities involves the buying and selling of shares in companies
Equaties represent a claim to a portion of a company’s assets and profits and their prices can be influenced by a range of factors such as earnings reports and consumer confidence
Which of the following institutions is not independent of the government?
HM treasury
Explain one way which in the bank of england can reduce the level of moral hazard in finical markets?
Moral hazard us a situation where one party in a transition has an incentive to take excessive risks because the costs of those risk will be borne by some else.
The bank of england can issue public statements to signal its concerns about risky behaviours in markets.
Explain one reason why a buffer stock scheme might be introduced by the government of a developing economy which exports a large volume of commodities such as oil or copper?
Gloal; prices of commodities tend to be volatile, which means that the export earning of the economy are unstable. Buffer stock schemes mean that the government will intervene to buy stocks when the price falls below a set minimum and to sell when the price rises above a set maximum in order to stabilise prices
Explain how a policy of progessive taxation cmna help to achieve redistribution of income?
Progressiv e taxation takes a larger proportion of income from high income earners than it does from low income individuals
Reducing the disposable income of high income earners
The revenue can be paid to those on low incomes as transfer payments
Rasing their disposable income and so reducing the gap between lower and higher income groups
Outline two ways in which demographic factors might constrain the growth and development of an economy?
Demographic factors, if population growth exceeds GDP growth then GDP per capita will fall. If population is ageing those in work will need to support larger elderly populations leading to greater interventional inequality
