Macroeconomics Real Life Examples (V1)

Question 1

Hyperinflation

Answer 1

Zimbabwe

• macroeconomic mismanagement in 2003-2009
• 231,000,000% in 2008
• issued 100 trillion Zimbabwean dollar banknotes

Venezuela

• Hyperinflation in 2017
• Dutch disease - over reliance on a particular sector due to abundance of natural resources
• Heavy money printing - printing money quicker than tax, Bolivar supply increased by 64%
• Deficit spending - large budget deficit of 13.27% in 2017
• inflationary spiral - 438% in 2017 to 65000% in 2018

Question 2

Structural unemployment

Answer 2

China

• 77% jobs at risk due to increasing automation
• Occurs when growth results from technological and institutional changes
• Primary and secondary industries declining, replaced by rising tertiary industry

Question 3

Regional disparities

Answer 3

2013

• USA 7.5% unemployment
• Nevada 9.6% unemployment
• North Dakota 3.1% unemployment

Question 4

Age disparities

Answer 4

2013

• Greece unemployment of 28%, but youth unemployment of 58.7%

Question 5

Cyclical unemployment

Answer 5

COVID outbreak

• 2019-2020
• peak of 14% unemployment in UK

2008 financial crisis

• many economies went into recession
• US - before crisis in Dec 2007: 5%; after crisis in 2009: 9.5%

Question 6

Deflation

Answer 6

Japan

• Continuous deflation in Japan since 1990s
• Lowest inflation rate of around -1.0% at the end of 2020
• 1991-2003 GDP growth of only 1.14% annually
• No. of corporate bankruptcies increased from 9,700 in 1990 to 23,700 in 2011
• unemployment rate decreased to 2.5%

U.S.

• Great Depression
• Fall in price levels of 7% every year 1930-1933 due to downward deflationary spiral

Question 7

Seasonal unemployment

Answer 7

• Liberia: agriculture employs 70% of the population
• High seasonal unemployment
• Most workforce only required during peak periods of harvesting and planting

Question 8

Equal distribution of income

Answer 8

Norway

• Gini coefficient: 0.23
• Public education including university is free for all citizens
• Everyone has equal opportunities to earn a high income
• Progressive taxes and long term unemployment benefits

Question 9

Unequal distribution of income

Answer 9

South Africa

• Gini coefficient: 0.63
• Over half the population in poverty
• Not enough new jobs are being created/only creating high-skilled jobs
• Effects of apartheid left many in a poverty trap (no education and no low-skill job opportunities)

Question 10

Transfer payments

Answer 10

Hong Kong CCSA (Comprehensive Social Security Allowance Scheme)

• 2021-2022 Expenditure: $22909 million
• 319 200 recipients (end of 2020)

1. Eligibility criteria:

• HK resident for more than one year
• Financial test: Income (applicant + family)+ asset test (savings, properties, investments etc.)
• Able-bodied 15-59 years old persons should actively seek full-time jobs and participate in the Support for Self-reliance Scheme

2. Types of payments:

• Standard rates (applicants receive different amounts based on age/ health/ family status) E.g. Able-bodied adult aged under 65 -> $2855 (single person); 100% disabled elderly -> $4905 (single person), $4335 (family member)
• Different supplements (Eg. single parent, transport, residential care etc.) E.g. Residential Care Supplement: HK$385 per month

Consequences

• Percentage of people in poverty decreased from 24% to 8%
• HK’s Gini coefficient decreased from 0.54 to 0.48
• Government expenditure of $23000 million

Question 11

Investment in infrastructure

Answer 11

Indonesia infrastructure investment 2017

• $28 billion to build 30km bridge linking 2 islands
• Reduces transportation costs -> reduces costs of production

Question 12

Industrial policies

Answer 12

Tax Cuts and Jobs Act

• Implemented by Trump in Dec 2017
• Reduced corporate tax from 35 to 21%
• Resulted in increased investment to expand productive capacity

Question 13

Reducing trade union power

Answer 13

UK reduced trade union power in 2015

• following a large number of strikes by London Underground and railways
• increased punishment for unlawful strikes
• introduced ability to fine the union for breaches of rules up to 20k pounds

Question 14

Economic growth

Answer 14

America

• 1950 Economic boom
• personal income increased from $1200 to $2200 (1945-1960)
• total value of G&S increased by 250%
• USA had the highest standard of living in the world

Causes

• Baby boom post war - increased by 20%
• low interest loans of 1.7% encouraging people to buy properties

Consequences

• Economy grew by 37% in 1950s
• Unemployment remained low of 4.5%
• Low inflation of -1.7%
• Household incomes increased by 63%
• Worsening of race inequality - veterans with color given less benefits
• Bracero Program caused worker exploitation

Question 15

Progressive tax

Answer 15

• Personal tax rates considered the lowest in the world
• Five marginal tax benefits: 2%, 6%, 10%, 14%, 17%
• Contributed to 58% of total tax revenue
• Reliance on narrow schedule of income tax means that the HK tax revenue may suffer during a period of economic downturn