Th3.5: Minimum Wage - Macroeconomic Effects

Question 1

What are the four macroeconomic effects?

Answer 1

reduce inequality
rise in AD
worsened public finances
reduction in competitiveness

Question 2

Reduce inequality

Answer 2

they are able to reduce inequality

Question 3

Rise in AD

Answer 3

since the poorest people see a rise in income and they have a high MPC - this will lead to economic growth and employment :D

Question 4

Worsened public finances

Answer 4

as the government employs many people on the minimum wage

Question 5

Reduction in competitiveness

Answer 5

the rise in business costs will lead to a reduction in competitiveness, which will negatively affect the trade balance and reduce the net trade component of AD. it will also increase SRAS, causing inflation in the short term