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Economics > Y13 macroeconomics > Flashcards

Y13 macroeconomics Flashcards

1
Q

Functions/features of money…

(Liquidity is how easily money can be spent)

A

Functions:
- Medium of deferred payment, medium of exchange and standard of deffered payment (money can be borrowed and can be paid back to the lender eventually).
Features:
- Acceptable, portable, durable, divisible, difficult to forge and limited in supply (to maintain value).

Commodity money has intrinsic value e.g. gold and fiat money has no intrinsic value e.g. notes and coins.

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2
Q

What is labour flexibility determined by?

A
  • Flexibility of labour
  • Flexibility of wages
  • Flexibility of working arrangements’, etc
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3
Q

What’s narrow money (M0)?

A
  • Liquid money
  • Examples are notes, coins and balances held at the central bank.
  • Also, deposits are an example.
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4
Q

What’s broad money (M4)?

A
  • Includes less liquid assets, as well as all the other thing that make up narrow money.
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5
Q

What is near money?

(Perhaps broad money?)

A
  • Non-cash assets that can easily be turned into money.
  • e.g. a certificate deposit (when you deposit your money in the bank for a specific timeframe)

(The more you move from M0 to M4, the more ILLIQUID the financial assets become)

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6
Q

Define a financial market is…

A
  • A market where buyers and sellers can trade financial assets.

(Money markets, capital markers and foreign exchange markets).

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7
Q

What is equity finance?

A
  • Equity finance is raised by selling shares in a company.
  • Raising equity finance is done by selling shares in a company.
  • This means that the person buying the shares (providing the finance) becomes a shareholder. + They now can claim some ownership and can profit via dividends.
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8
Q

What is debt finance?

A
  • Borrowing money that has to be paid back (usually with interest).
  • This could involve borrowing from financial institutions e.g. banks or issuing corporate bonds.
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9
Q

What can financial institutions and financial markets do?

A
  • They can make trade easier by allowing buyers to make payments quickly and easily.
  • They provide insurance cover to firms and individuals
  • Financial institutions can help people and firms save through banks, pension funds, bonds etc
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10
Q

What are personal loans…

A
  • Loans to individuals to be paid back over a small no. of years, can be secured or unsecured.
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11
Q

What are payday loans…

A
  • Loans that are short-term, small or unsecured loans, usually wiht high interest rates
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12
Q

Difference between secured loans and unsecured loans…

A
  • A secured loan is when a bank can force the sale of an asset to recover a loan’s cost if it isn’t paid back.
  • Unsecured loans are riskier so they have a higher rate of interest.
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13
Q

Why are banks regulated?

A
  • To reduce impacts of financial market failure
  • Protect consumers by policing firms and individuals
  • Maintain confidence in the financial sector and ensure stability in the financial services.
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14
Q

Details on money markets…

A
  • They provide short-term finance to banks, firms, and individuals.
  • Short-term debt will have a mturity date of up to a year or 24 hours.

(Maturity is a repayment period)

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15
Q

Details on capital markets…

A
  • They provide governments and firms with medium to long-term finance.
  • Governments and firms and raise finance by issuing bonds or borrowing from banks.
  • They have a PRIMARY market and SECONDARY market.
  • Primary market is for new share and bond issues.
  • Secondary market is where existing securities (e.g. a stock exchange) are traded. -> This boosts liquidity making it easier to spend.
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16
Q

Details on foreign exchange markets…

A
  • This is where different currencies are bought and sold.
  • Usually done to allow global trade and investment, or from speculation (fluctuations on currency prices).
  • The spot market are for transactions that will happen now
  • The forward market is for transactions that will happen at an agreed time in the future.
  • Forward markets exist for commodities r.g. a price for a future trade in coffee can be agreed in advance.
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17
Q

What is a bond…

A
  • A form of borrowing
  • Governments and large firms issue bonds to raise money (e.g. to correct a budget deficit or to buy new machinery) respectively
  • Investors purchase bonds at ‘face value’ and become bondholders.
  • After bonds have been issued -> Bonds can be traded for secondary capital markets
    -> Investors can buy or sell bonds at any price ( ‘market price could exceed or be lower than bond’s nominal value.
    -> When the bond matures, current bondholder is paid the nominal value of the bond by the issuer -> The issuer’s initial debt has been repaid.

(‘Face value’ is the nominal value)

(Bonds are where investors can essentially become bondholders and buy new bonds in a govt. or large firm)

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18
Q

Main roles of commercial banks…

(e.g NatWest, Barclays, Halifax etc)

A
  • Accept savings
  • Lending to individuals and firms
  • Be financial intermediaries (relay funds from lenders to borrowers)
  • Allow payments from one person or firm to another

(Retail banking provides services for individuals and smaller firms)

Wholesale banking deals with larger firms’ banking needs.

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19
Q

Role of investment banks…

A
  • Arrange share and bond issues
  • Offer advice on raising finance
  • Buy and sell securities on behalf of their clients.
  • Act as market makers to make trading in securities easier.

Securities are things like shares and bonds

(Investment banks engage in higher risk but MORE PROFITABLE activities).

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20
Q

What is a systemic risk?

A
  • A risk that a whole market or even the whole financial system might collapse.
  • This may happen if a bank uses deposits from the commercial banking side of their business to fund investment banking activity. -> If the banks lose money in bad investments, their depositors’ money could be at risk.
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21
Q

What are pension funds…

(Financial institutions)

A
  • These collect people’s pension savings and invest it in securities.
  • They can provide long-term, large-scale investment in companies.
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22
Q

What are hedge funds…

(Financial institutions)

A
  • Firms that invest pooled funds hoping to get a higher return
  • This want for high returns can be risky (and this is lightly regulated)

(Often considered to be a part of the shadow banking system).

(Pooled funds are combined investors’ funds)

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23
Q

What are private equity firms…

(Financial institutions)

A
  • These firms invest in businesses and try to make the max. return.
  • This could mean helping a firm become successful so that it could be sold for a profit.
  • However, they’re often criticised for asset-stripping and cutting jobs.

(Asset-stripping is selling a firm’s assets)

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24
Q

Details on the shadow banking system…

(This involves unregulated financial intermediaries)

(Has grown in recent years)

A
  • Hedge funds and private equity firms are often thought to be part of the shadow banking system.
  • The shadow banking system supplies an increasing amount of credit.
  • Its unregulated nature and lack of emergency support and large size add to the risk of it causing a financial crisis.
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25
Q

Details on illiquid assets and profitability…

A
  • Return rate on illiquid assets generally higher than liquid assets
  • So banks don’t want too many liquid assets.
  • Banks need to have a certain amount of liquid assets as banks lend money over a long-term (they’re paid back over a long timeframe) + But depositors who give their money to banks expect to be able to withdraw their savings immediately.
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26
Q

Why do banks need some liquidity?

A
  • To repay depositors when asked, but not too much as this may make them unprofitable.
  • Banks rely on depositors not all wanting to withdraw their savings at the same time -> This is due to how the bank may not be liquid enough, and the bank may not be able to repay them back.
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27
Q

What is a ‘run on the bank’?

A
  • When lots of people withdraw their savings if they thought it was at risk
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28
Q

What is a ‘run on the bank’?

A
  • When lots of people withdraw their savings if they thought it was at risk
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29
Q

Details on ‘risk’…

A
  • More secure an investment is, lower interest rate will be received and vice versa.
  • Ceteris paribus, risky investments will usually generate higher returns than less risky ones.
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30
Q

Details on inter-bank lending…

A
  • Lending between banks (a money market)
  • These lending with loans are short-term (usually less than a week)
  • Rate charged called the inter-bank lending rate or the ‘overnight’ rate
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31
Q

Relationship between market interest rates and bond prices…

A
  • Bond’s yield will roughly match the interest rates -> With similar risk levels
  • As I.R rates rise, bond prices fall and vice versa.
  • In equations/questions, the yield could be the I.R rate
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32
Q

How can a financial crisis create a systemic risk?

(Financial market failure)

A
  • The risk that a problem in one part e.g. a bank can lead to the breakdown of a whole market or perhaps even the whole financial system.
  • This could spread internationally

(A finnacial crisis often seem to happen a long period of prosperity)

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33
Q

Details on speculation…

(Financial market failure)

(Banks creating market bubbles…)

A
  • Aiming to profit from buying cheap assets and selling them at a higher price.
  • Excessively future asset prices can lead to market bubbles…
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34
Q

What are market bubbles…

(Financial market failure)

A
  1. A market bubble occurs when investors expect assets’ price to continue rising -> This could lead to overpay and could lead to a ‘market bubble’.
  2. The market bubble ‘bursts’ when investors lose confidence and they rush to sell their assets to avoid large assets. -> (Value slowly diminishes to perhaps profit turn into losses).
  3. A credit crunch is when the market bubble bursts, and banks reduce their lending from them having lower capital.
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35
Q

Externalities in financial markets…

A
  • ## Negative externalities involve mismanagement or risk.
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36
Q

Asymmetric information things…

(Financial market failure)

(Adverse selection and moral hazard)

A
  • This can lead to adverse selection and moral hazard.
  • Adverse selection is when the seller may not be able to tell the diffrence between a ‘good buyer’ and a ‘bad one’ at the time of the sale.
  • Moral hazard is when someone is more willing to take risks as they know someone else will have to pay the consequences if anything goes wrong. -> e.g. a bank may provide risky loans for high profits if it knows that taxpayers will bail it out should anything go wrong.
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37
Q

Details on the role of the central bank…

A
  • A ‘lender of last resort’ or a ‘banker to the bank’.
  • Banks can face a shortage of liquidity as they borrow short-term and lend long-term.
  • They can act as a ‘banker to the government’ by helping the government to manage its national debt and could offer them advice
  • A central bank could impose rules to prevent financial market failure and instability
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38
Q

Pros and cons of a central bank acting as a ‘lender of last resort’…

A

Pros:
- Prevent panic and a run on the banks.
- Helps to reduce the impact of financial stability.
Cons:
- Can lead to a moral hazard + Could encourage a bank to take excessive risks
- Could lead to insufficient liquidity for banks
- May seem unfair that the central bank will try to save financial institutions, but not non-financial firms.

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39
Q

Details on the regulation of financial markets…

A
  • This regulation usually focuses on competition, structure of firms and risk management and more
  • A ‘capital ratio’ measures the ratio of a bank’s capital to loans, which helps to measure the risks affiliated with bank’s lending.
  • A ‘liquidity ratio’ measures the ratio of highly liquid assets to the expected short-term need for cash. -> Gives an idea of the bank’s stability and its ability to meet its short-term liabilites.
  • These ‘ratios’ gives a better understanding of a bank’s overall stability

(In the past, financial markets were less regulated, but led to other problems such as illegal activity, market bubbles, excessive risk-taking etc)

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40
Q

Two types of financial regulation…

(Regulation of financial markets)

A

Microprudential regulation - To ensure that individual firms act fairly towards their customers and don’t take excessive risk or break the law.
Macroprudential regulation - To tackle systemic risks and avoid large-scale financial crises.
- FCA is a microprudential regulator.

(BoE regulates through the PRA and FPC)

(FPC is a macroprudential regulator, and PRA is a microprudential regulator).

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41
Q

Define globalisation…

A

Globalisation is the increasing integration of economies internationally. The main characteristics of globalisation

42
Q

Details on MNCs…

A
  • MNCs are firm which function in at least one other country aside from their country or origin e.g. Nissan or KFC
  • MNCs being est. depend on transport links, pro-investment govt. policies, access to cheap labour and raw materials , access to different markets and more.
43
Q

Some causes of globalisation…

A
  • Better communications technology
  • Rise in no. of MNCs
  • Trade liberalisation (removing tariffs, other restrictions etc)
  • Increasing investment by sovereign states
  • Firms expanding overseas to exploit economies of scale
44
Q

Some benefits of globalisation…

A
  • Trade encourages countries to specialise in the goods and services they’re best at producing/providing, boosting output.
  • Boosted employment and economic growth
  • Lower production costs form economies of scale can be passed onto consumers in the form of lower prices
  • World GDP has risen from this
45
Q

Some drawbacks of globalisation…

A
  • Can cause inflation as demand for goods and services may rise, and a bottleneck shortage may occur as supply will outstrip demand.
  • Can cause overdependence on other countries which can be risky
  • Rising world trade has led to global imbalances in BoP accounts, with some countires having large surpluses, and other countries having large deficits…
46
Q

Pros and cons of MNCs…

A

Pros:
- FDI by MNCs can create jobs
- MNCs can benefit from economies of scale + Some people beleive MNCs can raise living standards from lower unemployment
Cons:
- MNCs may exploit workers in developing countries
- MNCs may force local firms out of business as e.g. other firms may fail to achieve things like economies of scale
- MNCs can relocate quickly and cause mass unemployment
- Environmental implications, e.g. deforestation, carbon emissions etc

47
Q

Cons of globalisation for emerging countries…

A
  • Health and safety laws are less stringent in these countries
  • MNCs may offer low wages for workers + MNC workers may move to developed countries, reducing economic growth HOWEVER, globalisation can boost employment
  • Gaps between poor and rich can drastically widen (income inequality)
  • The tax receipts the govt. receives will need regulation to ensure the govt. dies not lose out on this revenue, and imposing this regulation can be costly
48
Q

Cons of globalisation for developed countries…

A
  • Higher imports can lead to a current account deficit
  • Cheap overseas production of goods has led to a sharp reduction in some industries in developed countries, causing unemployment.
  • This can lead to a rise in world trade which can lead top a rise in BoP deficit.
49
Q

Pros and cons of international trade…

A

Pros:
- A country can enjoy a larger variety of goods and services
- Additional markets allow firms to exploit economies of scale
- International trade can expose firms ti new ideas and skills e.g an MNC can bring new manufacturing skills to a country…
Cons:
- High transport costs
- Currency exchanges can lead to financial loss
- Can lead to globalisation problems

50
Q

Pros and cons of specialisation…

A

Pros:
- Better quality of goods and services
- Economies of scale can be exploited
Cons:
- Domestic industries may be forced to shut down as foreign firms may outcompete them
- Countires may be prone to cuts in goods’ supply if they don’t produce it themselves
- Over reliance can lead to issues + Other indistries may decline

51
Q

What is absolute advantage…

A
  • When a country can produce a good or service using fewer FoPs than another nation

(Trade)

52
Q

What is comparative advantage…

(This uses opportunity cost)

A
  • When a coutnry’s opportunity cost of producing a good is lower than the opportunity cost for other countries.
53
Q

What is a country’s terms of trade?

A
  • The relative price of its exports compared to its imports
  • If the exports’ price rise but imports’ price stays the same -> it’s terms of trade index will rise
  • If a country’s terms of trade index rises it’ll be ‘better off’, and if it falls, its ‘worse off’.
54
Q

Why trade is important…

A

For developed countries…
- Imports would aid maintaing high living standards
- Products would often be cheaper from developing countries’ higher competition and cheaper labour
For developing countries…
- Developing countries can import goods which they don’t have the tech for -> Higher living standards
- Trade gives developing countries access to new raw materials which could result in new industries -> Boosting the economy of the developing countries

55
Q

Some of the agreements of the WTO that its members need to conform with…

A
  • All countries should treat their trading partners equally
  • WTO wants to encourage competitiveness and discourage trade barriers e.g. subsidies
56
Q

Cons of free trade…

A
  • Firms being outcompeted could lead to job losses
  • Infant industries struggling may mean domestic consumers pay high prices for low quality goods
  • ## Demerit goods may be produced
57
Q

Non-tariff policies to protect domestic industries…

A
  • Tariffs (from developed countries’ paying)
  • Quotas (towards developed countries)
  • Embargoes
  • Reducing currency value of developed countries’
  • Subsidies
58
Q

Pros and cons of protectionism…

A

Pros:
- Can limit consumption of a demerit good
- Can correct a BoP deficit
Cons:
- Allocative efficiency and productive efficiency reduced + Specialisation reduced
- Higher prices from lower specialisation, squandaring chances of economies of scale
- High demand for imports may be due to poor domestic efficiency
- Trade barriers can lead to discord between countries

59
Q

What is comparative advantage…

A
  • The idea that a country should specialise in producing the goods or services it can at the lowest opp. cost.
60
Q

How will emerging economies benefit from trade?

A
  • They’ll be able to purchase cheaper goods/services from developing countries
  • They’ll benefit from importing goods/services which they don’t have the tech to produce themselves
61
Q

Cons of protectionism…

A
  • Reduced imports may reduce specialisation + Reduced allocative + productive efficiency
  • Higher prices due to lack of competition and specialisation
  • Rise in inequality + fall in living standards -> due to poor being most impacted by price rises of daily goods
  • Reduced choice for consumers
  • ‘Trade war’ from trade barriers e.g. a retaliatory embargo
62
Q

Types of trading blocs…

Trading blocs are associations between different governments that promote and manage trade…

A
  • Free trade areas -> no trade barriers whatsoever HOWEVER, individual members can still impose barriers on outside countries e.g. USMCA
  • Customs unions -> Free trade areas with standard tarrifs on non-members
  • Common markets -> Custom unions with the additional free movement of FoPs between members
  • Economic unions -> Trading blocs with members having similar economic integration
  • Monetary unions -> Members with the same single currency (could also be an economic union)

(USMCA - United States-Mexico-Canada Agreement)

63
Q

How can trading blocs lead to trade creation…

(Trade creation entails changing trade patterns)

A
  • Trade patterns change after barriers are removed -> As products are bought from cheapest source
  • Removal of trade barriers allow countries in the trading bloc to specialise where they have a comparative advantage -> This could boost efficiency and competition + trade
64
Q

Trading blocs’ impact on developing countries and other things…

A
  • Trading blocs can limit development of developing countries as they are non-members that cannot trade on equal terms.
  • Trading blocs can aid reducing protectionism by reducing no. of parties that need to negotiate a trade agreement
  • WTO has aided the reduction of level of subsidies on the EUs agricultural goods + HOWEVER, WTO policies may have prevented developing nations from diversifying as they were prevented from protecting infant industries
65
Q

What is economic integration?

A

The process by which the economies of different countires become more closely linked

66
Q

Pros and cons of economic integration…

A

Pros:
- Trade creation occurs -> Due to removal of tariffs from trading blocs + Consumers may choose lower-cost trading partners
- More efficiency, economies of scale etc
Cons:
- Trade diversion could result in more expnesive products as specialisation or efficiency could fall

67
Q

Pros and cons of monetary unions for domestic consumers…

A

Pros:
- Same currency means no extra currency needs to be bought
- No exchange rate risks
- Monetary union policies could help economies in long-run e.g. fiscal policies could stop long-run budget deficits
Cons:
- Policies to suit whole union may not aid individual countries’ economies e.g. if one member state in recession, recession may worsen IF central bank boosts I.R rates in other member states (as saving is incentivised, reduce borrowing etc)
- Countries may lose own control of their own economies (as the monetary policy control may be lost) + They may not be able to change I.R rates or exchange rates

68
Q

Pros and cons of EU enlargement on existing members

A

Pros:
- Higher economies of scale, higher efficiency etc
- Migration could bring skilled workers to existing members
- Migration from from new to old mem states will boost agg supp -> This would boost econ growth
Cons:
- Overcrowing from high migration + rise in inequality if new membs poorer than existing membs
- Increased competition from new members may drive domestic firms out of business

69
Q

Pros and cons of EU enlargement on new membs…

A

Pros:
- New membs will benefit from higher comp, higher efficiency etc
- New memb states have freedon to live and work wherever they choose in other memb states
- Joining e.g. EU has allowed new members to trade more easily with EU membs
Cons:
- New membs need to comply with EU laws
- Higher costs by govt. e.g. to boost safety
- Migration could lead to labour shortage
- Unemployment risk e.g. structural unemployment (if firms struggle to compete with existing memb states)

70
Q

Pros and cons of EU membership…

A

Pros:
- Less job losses etc
- Less export revenue etc
Cons:
- Control over migration could be impacted
- Free trade area

(Same or similar pros and cons of EU enlargement)

71
Q

EMU things…

(Their role and what they deal with)

A
  • A common monetary policy usually dealt with by the ECB
  • Memb states coordinating fiscal and economic policies
  • Memb states using a common currency - the euro
72
Q

Pros and cons of joining Eurozone…

A

Pros:
- Higher FDI
- Increased trade + Reduced transaction costs
Cons:
- Low price stability (big aim of ECB)
- Falls in real GDP + low consumer spending
- High structural unemployment (from overcrowding?)

73
Q

Pros and cons of price mechanism…

A

Pros:
-> Allocative efficiency as consumers’ wants and needs satisfied
-> No cost required to operate price mechanism
-> Consumers decide what is/isn’t produced by consumers
-> prices kept to minimum due to allocative efficiency of resources
Cons:
-> inequality in wealth and income likely
-> market failure from over/underprovision
-> people with low skills will be subject to low wages or unemployment
-> public goods not provided

74
Q

How can the price mechanism lead to unintended consequences?

A

-> It can reduce supply…

75
Q

Price mechanism functions…

A
  • Signalling device e.g. high prices signal high demand -> producers will boost production
  • Ration scarce resources -> e.g high demand = low supply and high price
  • incentive to firms -> higher prices allow firms to produce more and higher production from higher profits
76
Q

money market is the financial market in which…

A
  • short-term finance is provided for companies and govts.
77
Q

Pros and cons of HDI…

A

-

78
Q

HDI uses…

A
  • Life expectancy at birth
  • Mean yrs of schooling and unexpected years of schooling
  • GNI per capita (at PPP)
79
Q

Pros of economic growth…

A
  • Rise in material living standards
  • Reduces poverty
  • Lower unemployment
  • Improves people’s welfare
  • Increased power on the international stage
80
Q

What HDI takes into account…

A
  • health
  • living standards (by GNI per capita, adjusted for PPP)
  • education (schooling years)
81
Q

GNI points…

A
  • Used to measure living standards
  • GDP + net income from overseas investment plus remittances
  • GNI per capita = GNI / population
82
Q

Pros and cons of HDI…

(Think about social, global, other factors etc)

A

Pros:
- Focuses on 3 core aspects, not just economic growth
- Allows comparisons between countries
- Developed countries can send aid to countires with low HDI scores
Cons:
- Ignores income distribution
- Arbitrary weighting -> All indicators given equal weighting
- Doesn’t mention health/quality of education
- Doesn’t mention non-economic measures e.g. human rights

83
Q

Barriers to growth and development…

A
  • Corruption
  • Institutional factors including property rights
  • Poor infrastructure
84
Q

Policies to promote development…

A
  • Monetary policy
  • Fiscal policy
  • Supply-side policies
  • Subsidies
  • Indirect taxes
  • Improve institutional factors
85
Q

Pros and cons of aid…

A

Pros:
- Better quality of life -> Better employment -> Right shift LRAS
- Better quality/qty of goods/services
- Can assist debt relief
Cons:
- Countries may become over-reliant
- Some countries provide aid on certain conditions
- Can be used as a political tool
- Corruption could lead to aid not going to where its meant to go

(High living standards doesn’t always mean better quality of life, e.g. high living stards but low health)

86
Q

Pros and cons of trade…

A

Pros:
- If a country is on a BoP surplus -> More employment -> More tax revenue -> Right shift in AD and right shift in LRAS
- PPP rises due to lower prices from higher competition
Cons:
- BoP deficit possible
- Political reasons may lead to protectionist measures -> hindering trade
- It’s argued that its bad for developing countries -> They are asked to reduce trade barriers -> But at the same time developed countries put up trade barriers
- WTO members perhaps constrained by regulations
- Negative externalties ignored

87
Q

Some determinants of trade/aid…

A
  • Investment in physical infrastructure
  • Human capital
  • Access to credit
88
Q

Capital flight…

A
  • When people hold their savings abroad -> Perhaps due to high tax rates
  • This may cause issues
89
Q

Harrod-Domar model things…

(What is states)

A
  • Economy’s growth directly linked to an economy’s saving lvls + How efficiently the economy’s capital can be used
    -
90
Q

GPI details…

A
  • A fuller picture of GDP effects
  • Takes into account negative effects of growth e.g. pollution
  • However, could be difficult putting a cost on pollution -> Figures could be subjective

(Uses GDP)

91
Q

Types of aid…

A

Bilateral aid - When a donor country directly sends aid to the recipient country
Mulitlateral aid - When a donor country passes aid to an intermediate agency e.g. the World Bank and gives aid to country
Tied aid - Aid sent on a condition that money is spent in a particular way

91
Q

Big causes of inequality…

A
  • Wage and tax lvls
  • Unemployment lvls
  • Education lvls
  • Lvl of govt. subsidies
91
Q

Pros and cons of debt relief…

A

Pros:
- Frees up money for the public sector
- Money saved can be invested into capital goods to grow economy
Cons:
- Moral hazard possible
- Cancelling debt of corrupt govts. could mean more money is misused
- Debt cancellation could benefit donor country as they would receive influence
- Perhaps ‘favours’ could be set

92
Q

Lewis Model…

A
  • Excess labour in agricultural sector -> So, no opp. cost if agricultural workers go to industry to take higher wages
  • Profits can be reinvested -> Higher productivity gains
  • Point will be reached where everyone will be better off
  • However, labour to industry may be difficult + Profits may go abroad or used for consumption + Capital intensive production with little human labour -> Will lead to not many additional jobs
93
Q

Inward-looking strategies…

(Like interventionist strategies, free market strategies more popular now)

A
  • Protect domestic industires until they can compete worldwide
  • Main policy is import subsidisation -> Prev. imported goos replaced by domestically made goods -> Achieved by quotas and tariffs
  • Currency may be artificially highly maintained for cheap imports

(Short-term aim is to create jobs, lower poverty and improve BoP).

94
Q

Outward-looking strategies…

A
  • They emphasise free trade, deregulation and foreign investment
  • Firms encouraged to invest and seek new export markets
  • Same pros and cons from free trade…
95
Q

Microfinance…

(With fairtrade things)

A
  • Making small loans to businesses and individuals -> to boost financial independence -> Not clear that it can lower poverty on a large-scale
  • Fairtrade aims to offer individual farmers a guaranteed min. fair price -> Long-term planning made easier
  • However, market price distored could lead to overproduction -> Low prices may mean farmers flood the market -> Drive price down further
96
Q

IMF, IBRD and IDA…

A

IMF:
- Imposes quotas on members to maintain financial stability
- Fights poverty
IBRD:
- Aims to reducew poverty in middle- low- income countries
IDA:
- Aims to reduce poverty in poorest countries

HOWEVER, these organisations help on conditions that countries follow certain economic policies + Perhaps developments limited + All developing countries different so different help would be needed

(NGOs offer help e.g. training or advice on environmental sustainability)

97
Q

Define aid…

A
  • Money,goods or services and ‘soft-loans given by the government of one country or mulitlateral instituion to help another country.
98
Q

Assumptions of comparative advantage…

A
  • Average cost of production is constant
  • No trade barriers
  • No transport costs
99
Q
A

Economics (16 decks)

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