micro and macro concepts

Question 1

free trade micro effects

Answer 1

increased economies of scale, decreased prices and increased consumer surplus, increased quantity and choice for consumer, technology diffusion increased, increased profits for firms and reinvestment into dynamic efficiency

Question 2

macro effects of free trade

Answer 2

increased growth as they may exploit comparative advantage leading to export led growth, reduced unemployment due to more demand for labour, may increase inflation due to demand pull but may reduce cost push. Current account may improve if there is a comparative advantage but if not may worsen. FDI may increase.

Question 3

macro reasons for protectionism

Answer 3

protect against structural unemployment, improve government finances through tariff revenue, correct current account deficit, increase economic growth through trade.

Question 4

macro reasons for protectionism

Answer 4

protect infant industries, allow them to develop economies of scale, protect against dumping, protect consumers from harmful unregulated products.

Question 5

macro effects of protectionism

Answer 5

protect against unemployment, correct X-M and increase growth, increased cost push inflation, may increase inequality due to regressive nature of tariffs.

Question 6

micro effects of protectionism

Answer 6

decreased consumer surplus, decreased quantity and choice, increased revenue for producers, may lead to allocative and x inefficiency due to complacency.

Question 7

macro effects of expansionary monetary policy

Answer 7

increased growth, decreased unemployment, increased demand pull inflation, less competitive exports may lead to current account deficit, however lower interest rates may depreciate currency

Question 8

micro effects of expansionary monetary policy

Answer 8

savers suffer due to lower returns, people such as pensioners, reduced SOL, housing markets, lowered interest rates allows for lower borrowing costs and more mortgages, increasing demand for houses and pushing the prices up, causing wealth effect for owners but harder for first time buyers. For firms, they may have lower costs due to lower interest rates to borrow and increase their profitability. Debt payments are also reduced. if variable

Question 9

macro effects of contractionary monetary policy

Answer 9

decreased growth, increased unemployment, decreased inflation, decreased inflation makes exports more competitive, increasing x-m potentially, but hot money may flow in appreciating the currency. there may also be reduced systemic risk due to the absence of cheap credit and risk of asset price bubbles due to less borrowing.

Question 10

micro effects of contractionary monetary policy

Answer 10

positive for savers, falling house prices may make it easier for first time buyers, decreased profitability for firms, increased debt value

Question 11

macro effects of expansionary fiscal policy

Answer 11

increased growth, reduced unemployment, increased inflation, reduced export competitiveness, increased imports, increased budget deficit

Question 12

micro effects of expansionary fiscal policy

Answer 12

crowding out, can solve market failures such as education, impact on public services, can lead to x inefficiency if complacent, or increased profits

Question 13

macro effects of contractionary fiscal policy

Answer 13

improved government finances, potentially increased confidence meaning lower coupon rates for future bonds, more fiscal space, reduced inflation, reduced ad will lead to more competitive exports along with reduced import spending may improve current account. potentially reduced trend growth due to less G

Question 14

micro effects of contractionary fiscal policy

Answer 14

less crowding out, reduced x inefficiency, increased inequality

Question 15

micro causes of income inequality

Answer 15

differences in education, age, capital intensive, technology, flexible contracts, inheritance

Question 16

macro causes of income inequality

Answer 16

one sector dominance, recession, globalisation, FDI, government policies

Question 17

micro consequences of inequality

Answer 17

societal costs, incentive to educate, incentive to work, incentive for entrepreneurship

Question 18

macro consequences of inequality

Answer 18

government finances, living standards, asset bubbles, reduced growth due to lower MPC of higher earners.

Question 19

micro polices to solve inequality

Answer 19

minimum/maximum wages