Macro Policies In A Global Context Flashcards
(12 cards)
What do you use to reduce fiscal deficit and national debt
Contractionary fiscal policy- decrease spending, increase tax- main focus on decrease spending
Austerity Measures
Automatic Stabilisers- allow economy to grow so national debt would decrease as a percentage of GDP
What do you use to reduce poverty and inequality
Progressive tax system- income tax and inheritance tax
Welfare spending- gov spending on benefits and transfer payments
However, reduce incentive to work
Improved public services
Reduce wage differential- national minimum wage, equal pay legislation, enhance trade union power
Improved access to education and training opportunities
Price control on essential goods
Trickle down effect from the rich
What is used to change interest rates and supply of money
Monetary Policy- interest rates and QE
Interest rate- control inflation, counteract low exchange rate or world commodity price
QE- when concerned about deflation
What can be used to improve international competitiveness
Supply Side Policies- improve productivity- shift LRAS
Exchange rate policy- can only be used in countries with managed and fixed exchange rate
Join trading blocs and sign trade agreements
What can be used to improve macroeconomic stability
Exchange rate policy
What policies can be used to reduce impact of external shocks
Expansionary fiscal and monetary policy
Financial crisis or commodity price shocks- expansionary policies to increase AD
Interest rates lowered to increase confidence and increased to deal with inflation
supply side policy to boost trade
If there is a change in exchange rate- reduce red tape, tax cuts- solve balance of payments issues and inflation
What could be used to monitor TNCs
Regulation
Developing countries not allowing TNCs to set up in the country on their own- need to have joint company with local business
EU and US- illegal for TNCs in their country to use bribery or corrupt practices anywhere in the world
What is transfer pricing
Tax avoidance
When subsidiary in one country (high tax) sells product to the other subsidiary in the same company in a different country (low tax) charging a below market price to decrease cost and increase profit in the low tax subsidiary and lower revenue and less profit in the high tax subsidiary.
The firm could pay less corporation tax (tax on profit)
What regulation is put on transfer pricing
Arm Length Principle- transfer pricing needs to be same between related subsidiaries and with unrelated parties in open market
Evaluation for TNCs
It is hard to control TNCs
Some governments may earn less tax revenue than TNCs earn in profit
Apple, Amazon, Microsoft- if they were countries, they will be ranked among top 10 richest nations
What are the problems faced by policy makers
Inaccurate information- short term GDP and labour market stats- ONS labour market underestimated growth in employment
Time consuming and costly to make decisions
Government can’t predict risks and uncertainties- cant predict the future and consumers react unexpectedly
Unable to prepare for external shocks
What is crowding out
PPF curve:
Y: Government spending
X: Private Sector spending
Movement along the curve to the right
Increasing gov spending through borrowing from individuals and businesses- increase demand for credits- increasing interest rate- more expensive for private firms to borrow for investment- decrease private sector investment
