Unit 1.3 Political responses in front of limitations

Question 1

Solutions for economic policy limitations

Answer 1

1. Knowledge: use tools, models and analytical methods that consider that the economic environment has a high degree of uncertainty
2. Representation: Use vector autoregressive models (VARs) or micro-founded models to better model agents’ adaptative behaviour
3. Credibility: Decrease the degree of discretion of the policy market
4. Information: By creating a principal-agent contract leads to the employee being motivated to work towards the company’s goals through incentives like expected profits. Also to ensure everyone shares information there could be penalties like fines for not telling the truth or rewards for good practices, such as lower insurance costs for companies that take fewer risks.
5. Benevolence: This is about encouraging good behaviour and ethics among government workers and politicians. Codes of ethics for civil servants help guide their actions, especially regarding conflicts of interest. Additionally, regulations around lobbying are important to keep things transparent and fair,

Question 2

Solution for lack of global governance

Answer 2

1. Global financial coordination: Organisations to create and coordinate these rules globally.
2. Bank for International Settlements: A place where banks can discuss and set policies together
3. Financial stability board: the FSB is like a global council that sets rules for financial markets and institutions to prevent future crises.
4. Regional and global groups: EU, WTO etc
5. Informal subgroups

Question 3

Various types of economic unions

Answer 3

1. Free Trade area: Countries in this group agree not to impose taxes on goods they trade with eachother.
2. Customs union: All member countries apply the same customs duties on products coming from outside the union
3. Single market: A single market goes beyond just trading goods without taxes, it also allows services, workers and money to move freely across member countries
4. Monetary Union: In a monetary union, member countries adopt a single currency.