Classic Macro Economic Arguments Flashcards
(10 cards)
the good and bad of growth
good+counter
good: exp policies —> AD shifts right —> use up spare capacity —> decrease U —> fiscal dividends (fiscal rewards that come with growth)
counter: low paid McJobs —> living standards don’t rise or reduce inequality
good: more tax revenues —> spend on public services —> economic welfare
counter: no help if tax is spent on debt relief or corruption
good: growth —> virtuous upward cycle —> accelerator —> investment —> p growth
counter: firms may pay dividends if nervous
the good and bad of growth
bad+counter
bad: too much a growth —> close to Yfe —> SC —> d pull inflation —> WPS inflation
counter: if we have spare capacity —> no SC
bad: over consumption —> pollution —> global warming (1 degree since IR) —> we need to protect the planet
counter: if we find sustainable growth —> no problems
bad: rising consumption —> suck in imports —> current account deficit —> leakages —> jobs go abroad
counter: no issue if we buy locally produced goods
which are better demand side or supply side policies?
demand side+counter
gov spending and low tax —> AD right —> a growth —> use up spare capacity —> U falls
counter: expansionary fiscal policy —> budget deficit and crowding out
cut interest rates —> cheaper to borrow —> more consumption and investment —> use up spare capacity —> U falls
counter: cut interest rates —> nervous consumers might not borrow more
economy growing —> accelerator —> more growth —> private sector crowded in
counter: animals spirits lacking —> firms may pay dividends —> not invest
which are better demand side or supply side policies?
supply side+counter
too much stimulation —> too close to Yfe —> SC —> rising costs —> d pull inflation
counter: if there’s spare capacity its calm
use to boost LRAS —> avoid SC (infrastructure, cut corp tax, education, cut red tape)
counter: expensive and take time —> if we in a recession we need demand
raise productivity —> earn our way in the world —> we have a huge BOP deficit need to get it down
counter: trading partners also raising productivity —> hard to get ahead
should we try cut our budget deficit?
yes+counter
over stimulation —> close to Yfe —> SC —> rising costs —> d pull inflation
counter: if we have spare capacity its calm
private sector may be crowded out by public sector —> need efficient private sector led growth
counter: if in recession —> need gov to kick start recovery
borrowing —> increases national debt —> intergenerational theft —> services —> opp cost on interest payments
counter: if bond markets happy its okay —> if we get more growth then gdp>: debt so calm
should we try cut our budget deficit?
no+counter
injections —> growth
counter: debt has to be paid back
growth —> accelerator —> crowding in
counter: nervous firms may pay dividends and not invest
spend on supply side
counter: expensive + time
how do we get down the national debt?
choice of policy+however
cut gov spending to reduce borrowing (austerity) –> debt at 96% of GDP
however: essential services suffer + austerity is unpopular
increase tax —> reduce deficit —> lower borrowing —> interest on national debt —> 100bn —> opp cost
however: high taxes —> dodge discintivise depart
growth —> debt to GDP ratio falls
however: pandemic + brexit + trump —> growth going to be difficult to find
how do we get down the national debt?
the counter argument+however
increase tax + cut gov spending —> contractionary —> unemployment
however: implement these policies once the recovery begins
we can afford the debt growing —> if supply side grows (structural deficit)
however: expensive + time
economic slow down —> running a cyclical deficit makes sense —> boosts economy
however: bond markets get nervous then interest rates may rise
should we engage in protectionism?
yes+evaluation
tariffs raise import prices —> enable domestic firms to compete —> jobs
however: impact depends on elasticities
protectionism can be a response to dumping —> this is anti competitive
however: difficult to identify where products are being sold below cost
tariffs are a source of tax revenues
however: less significant for western economies ad the tax may be spent badly
should we engage in protectionism?
no+evaluation
tit for tat responses —> less specialisation + competition + access to markets
however: trade wars can be avoided —> WTO reg
tariffs —> higher prices —> higher producer surplus —> lower consumer surplus
not a worry if consumers can switch to domestic alternatives
quotas —> less choice and higher prices
however: depends on the size of the quota being offered
