4.5.4: Macroeconomic Policies In a Global Context

Question 1

What are the different things the government can use to achieve their goals?

Answer 1

• Fiscal Policy
• Monetary Policy
• Supply Side Policies
• Exchange Rate Policy
• Direct Controls

Question 2

What do direct controls include?

Answer 2

• Minimum or maximum prices/ wages, quotas on imports, limits on currency or regulation eg maximum interest rates

Question 3

How can the governments reduce national debts?

Answer 3

• Decrease spending (policy of austerity)
• Increase taxes
• Demand stimulus by high spending; cause economic growth and therefore bring about higher tax revenues
• Automatic stabilisers- to allow the economy to grow so national debt/ fiscal deficit will reduce as a percentage of GDP.

Question 4

How can macroeconomic policies be used to reduce poverty and inequality?

Answer 4

• Progressive tax system; redistributes income
• Inheritance taxes; wealth inequality will be reduced as less money can be passed on to the next generation.
• Government Expenditure: Benefits and Transfer Payments eg child benefits, universal credit
• Provision of goods and services

Question 5

How can reduction of wage differentials reduce poverty and inequality?

Answer 5

• A national minimum wage will improve the income of the poor.
• A maximum wages or pay ratios will reduce the income of the rich and could mean companies increase the pay of their lowest income workers.
• EV: However, minimum wages may cause unemployment and maximum wages may lead to a loss of the most skilled workers

Question 6

How does the government make changes in interest rate and supply of money?

Answer 6

• The central bank may change monetary supply and interest rates to perhaps control inflation or due to global issues such as a low exchange rate or a change in world commodity prices

Question 7

Impacts of Transactional Companies

Answer 7

• TNCs can bring huge gains to an economy through their creation of jobs, the tax revenue they raise, the knowledge they bring and the investment they undertake
• They can have negative economic and social impacts by destroying local culture, affecting the environment and withdrawing more in profits than they inject through investment