Sept - Feb Macroeconomics

Question 1

What is economy structure?

Answer 1

The structure of an economy comprises of the different types of economic activity that the economy undertakes

Question 2

Describe the economic structure of a developing country?

Answer 2

Typically have a high share of primary sector employment, as they begin to develop further then more employment is created in the secondary industries.

Question 3

What is economic growth?

Answer 3

An increase in the long run productive capacity of an economy.

Question 4

What is economic development?

Answer 4

The process that seeks to improve the economic well being and quality of life for a country.

Question 5

Name some themes of economic development?

Answer 5

Higher living standards

Improved availability of basic needs

Expansion in opportunities for education and enhanced healthcare.

Improve resource allocation and sustainability.

Question 6

What does GDP per capita as a measure of economic development fail to address?

Answer 6

The extent of income distribution

Resource depletion

Pace and scale of pollution

Quality of life measures

Question 7

What is the ‘better’ measure of Economic development?

Answer 7

Hdi

Question 8

What is sustainable development?

Answer 8

People being able to satisfy their needs for today and improving their sta date of living without impacting on future generations.

Question 9

How could we obtain sustainable development?

Answer 9

If we invest in capital goods today, then we can enjoy greater prosperity in the future. And increase in capital good will increase the PPF outwards, expanding productivity.

Question 10

What factors are required for both economic growth and economic development?

Answer 10

Investment

Education

Training of workers

Health improvements

Question 11

What are the barriers to economic growth and development?

Answer 11

Corruption

Institutional factors - inefficient handling of finances

Poor infrastructure - difficult for business to access markets

Inadequate human capital - skill of workforce lacking

Lack of property rights - no incentive to trade innovate or develop

Question 12

What are the 3 criteria measured for HDI?

Answer 12

Life expectancy at birth

Mean years of schooling

GDP per Capita

Question 13

Advantages of HDI?

Answer 13

Takes into account well being of country

Used fairly reliable data

Can identify successful government policy, particularly supply side policy like education.

Question 14

Limitations / disadvantages of HDI?

Answer 14

Fails to take into account qualities be factors like political freedom.

Does not take into account income inequality in a country

Does not look at poverty or deprivation within a country

Question 15

What is income?

Answer 15

A flow of money coming from the 4 factors of production

Question 16

What is wealth?

Answer 16

A stock concept. Can be held in different ways

Eg savings
Ownership of shares
Ownership of property
Bonds

Question 17

Where is the poverty line in the UK?

Answer 17

On or below 60% of the median income

Question 18

What does the Lorenz curve describe?

Answer 18

Income distribution through the population.

Question 19

What does the straight line at a 45 degree angle on a Lorenz curve mean?

Answer 19

Perfect equality

Question 20

What does it mean if a curve bows further away from the 45 degree line?

Answer 20

There is more income inequality

Question 21

Why is the Lorenz curve bad?

Answer 21

Cannot compare a wide range of countries

Question 22

Why do some governments redistribute income?

Answer 22

Fairness

Inequality negatively affects AD

Negatively impacts LRAS - poor may not go to school in the long term this negatively impacts human capital

Negatively impacts SRAS - employees would be trapped in low wage cycle

Negatively impacts economic development - low pay contributes to ill health etc

Question 23

What is absolute poverty?

Answer 23

Difficulty subsisting, below the subsistence level. World banks defines it as living on less than $1.90 per day

Question 24

Conditions of absolute poverty?

Answer 24

Lack of food
Lack of safe drinking water
Lack of sanitation facilities
Lack of proper access to healthcare
Lack of shelter, education and information.

Question 25

What is relative poverty?

Answer 25

Defined in relation to the overall distribution of income or consumption in a country. In UK it’s set as 60% or below of the median income after taxes and benefits

Question 26

Compare relative poverty with absolute poverty?

Answer 26

Relative poverty the inability to reach the minimum accepted standard of living in a particular society. Absolute poverty could include the inability to live. Relative poverty you have no luxuries, in absolute poverty, you cannot afford necessities. Absolute poverty refers to a set condition anywhere in the world, where’s relative poverty refers to conditions which are subjective to the society that the person lives in.

Question 27

What are the general causes of poverty?

Answer 27

National debt Vulnerability to natural disasters War and political instability History Discrimination and social inequality

Question 28

Causes of relative poverty?

Answer 28

Inequalities in wage and earnings growth Inheritance High levels of structural and long term unemployment Falling relative value of state benefits Regressive taxes- higher tax burden in poor than there was previously

Question 29

What are the consequences of poverty?

Answer 29

Malnutrition Poor health Poor quality education - unable to attend etc, can’t afford materials / clothing

Question 30

Direct impact of poverty on the economy?

Answer 30

Directly impacts employment rates in the economy, without education it’s very difficult to get a job. Hinders economy from developing into strong economic system.

Question 31

Indirect effect of poverty in the economy?

Answer 31

Poverty can lead to homelessness which means more people on the streets. Also more crime where there’s less employment and social unrest may take places Theft to survive Negative perceptions of place etc

Question 32

Causes of inequality?

Answer 32

Education - quality or status of schooling. Lack of mobility in labour market - highly skilled workers eg doctors paid more than cashiers Wealth and inheritance - many households can use their wealth to generate more and varied sources of income, those lacking wealth cannot do this. Age - as you get older, earning potential decreases Skill set

Question 33

Why is there income inequality between countries?

Answer 33

Differing educational standards Ownership of wealth and assets Demographic reasons Lack of employment mobility.

Question 34

Causes of wealth inequality in UK?

Answer 34

Pension inequality Property prices Ability to save Increased income inequality Regional factors.

Question 35

Reasons for wealth inequality across the world?

Answer 35

Same as UK factors Natural factors eg oil = higher wealth Political factors eg stable gov = more investment Culture Ownership of assets

Question 36

Consequences of inequality?

Answer 36

Crates economic instability Reduces rates of economic growth Harms educational standards Inequality linked to poor health

Question 37

Why is inequality between countries bad?

Answer 37

Helps to exacerbate inequalities within countries Leads to mass migration as those in developing countries seek to move elsewhere Can lead to exploitation

Question 38

What does globalisation affect?

Answer 38

``` The economy Politics Society Culture Environment ```

Question 39

Consequences of globalisation?.

Answer 39

Greater trade if goods and services Greater transfer of financial capital and greater FDI Greater transfer of technology and information between world economies Greater labour migration within and between economies. Development of global brands Inclusion of more economies into the global trading system. Greater specialisation in production

Question 40

Possible causes of globalisation?

Answer 40

Improved transport Containerisation Improved technology Growth of MNCs Reduced trade barriers Growth of trading blocs Improved mobility of labour Improved mobility of capital

Question 41

What is protectionism?

Answer 41

Countries opting to impose restrictions on foreign imports

Question 42

What are the main methods of protectionism?

Answer 42

Tariffs Quotas Intellectual property laws Exports subsidies Domestic subsidies Import licensing

Question 43

What is a tariff?

Answer 43

A tax or duty that raises the price of imported products

Question 44

What is a quota?

Answer 44

Volume limits on the level of imports that are allowed into a country in an given time period

Question 45

What are intellectual property laws?

Answer 45

Technical barriers to trade including product labelling laws eg patents and copyright protection

Question 46

What are export subsidies?

Answer 46

Payments to encourage domestic production by lowering their costs

Question 47

What are domestic subsidies?

Answer 47

Government help for domestic businesses facing financial problems

Question 48

What is import licensing?

Answer 48

Government grants importers the license to import goods

Question 49

Why is the imposition of a tariff negative?

Answer 49

Loss to consumers is greater than the benefits to producers and government combined.

Question 50

Who are the winners from tariffs?

Answer 50

Government Gains tax revenue Domestic producers can sell a higher quantity to the domestic market, increasing supply from Q1 to Q4 leads to increase in producer surplus

Question 51

Who loses out from a tariff?

Answer 51

Domestic consumers who now pay p2 therefore decreasing consumer surplus. Foreign exporting firms - exports fall from q2q1 to q3q4 Net welfare loss of X and Y

Question 52

What is economic integration?

Answer 52

An agreement between counties in a geographic region to reduce and ultimately remove tariff and non tariff barriers to allow the free flow of goods or services and factors of production among the members.

Question 53

What are the stages of integration?

Answer 53

Free trade area Customs union Single market Monetary and economic unions

Question 54

What is a free trade area?

Answer 54

No tariffs between member countries Eg NAFTA

Question 55

What is a customs union?

Answer 55

Free trade area with a common external tariff Eg all agree same restriction in Chinese / Thai imports

Question 56

What is a single market?

Answer 56

Composed of a customs union, free movement of goods , services, capital and labour between members Eg EU single market.

Question 57

What is an economic and monetary union?

Answer 57

Where two or more states share a currency Eg Eurozone Share at least 1 fiscal policy and 1 monetary policy

Question 58

What is the opposite of protectionism?

Answer 58

Trade creation

Question 59

What is trade creation?

Answer 59

Refers to the increase in economic welfare from joining a free trade area such as the customs union. Trade creation will occur when there is a reduction in tariff barriers leading to lower prices. Increased consumer surplus and economic welfare More foreign trade created with members of customs union

Question 60

Who are the winners of trade creation?

Answer 60

The net gain seen in areas 2 and 4

Question 61

Who are the losers of trade creation?

Answer 61

Government as they lose tax revenue Domestic producers and imports become cheaper and provide more choice

Question 62

What is trade diversion?

Answer 62

Occurs when tariff agreements cause imports to shift from low cost countries to higher cost countries. Considered undesirable because it concentrates production in countries with a higher opportunity it’s cost and lower comparative advantage

Question 63

Explain trade diversion using the example of the UK joining the EU and stopping trade from New Zealand?

Answer 63

Before Uk joined the EU it had common tariff on all butter imports and chose to import from low cost New Zealand. After the UK joins the EU it can benefit from tariff free imports from Denmark and other EU producers at a price of P1. Consumer surplus gains 1 + 2 + 3 +4 and UK dairy farmers lose producer surplus of 1, loss of tariff revenue from the government is 3 + 5. Net loss from trade diversion in joining the EU if 2 + 4 is less than 5. A net gain from trade diversion would arise if 2 + 4 was greater than 5.

Question 64

What are the evaluative points of trade diversion?

Answer 64

Depends of size of customs union tariff - smaller tariff has less benefits in therms of trade creation, domestic producers can still compete Depends on PED - more elastic PED = more likely to be net welfare loss due to the more inefficient imports from within the CU. Inelastic demand is more likely to have a net welfare gain.