46392
The application of
macroeconomic
policy instruments
and the international
economy
- Fiscal-tax and expenditure
- reflationary=increase AD
- deflationary=decrease AD
- discretionary
fiscal=govt actively
influence AD
- automatic
stabilisers=forms of govt
spending and tax that
change automatically
- progressive
tax=takes a higher %
of income from the
rich e.g. income
- regressive
tax=takes higher %
of income from
poor-flat rate e.g.
VAT
- limitations
- time lag after implementation
- takes time
to recognise
need to
change
- complex and time consuming
- some forms of govt spending are
inflexible/hard to stop
- other components, external factors
- -ve impact on other
macroeconomic
objectives
(inflation/unemployment)
- time lag after implementation
- reflationary=increase AD
- Monetary-money supply,
interest rate, exchange rate
- reflationary=increase
AD
- deflationary=decrease AD
- interest rate
- increase base
rate>reduce
cons/investment
- high interest rate> UK
people save> abroad
save into UK bank>
imp greater than exp>
decrease AD
- increase base
rate>reduce
cons/investment
- money supply
- print more money
so that more
money is available
which in turn
increases
investment and
increase in supply
- print more money
so that more
money is available
which in turn
increases
investment and
increase in supply
- exchange rate
- to reduce exchange rate,selling the
£ would increase supply of £ on
foreign exchange. this reduces its
values and AD increase as exp>imp
- to reduce exchange rate,selling the
£ would increase supply of £ on
foreign exchange. this reduces its
values and AD increase as exp>imp
- reflationary=increase
AD
- Supply side policies-influence CELL
by increasing the quality and
quantity of factors of production
- education and
training=increase
quality and
quantity of
workforce (more
skilled labourers)
- govt
assistance to
new firms=no of
firms
increase>higher
efficiency of
FOP and
aggregate
supply
- reduce direct
taxes=more
workers/encouraged
to work (competition
gives incentive to
invest)
- reduce minimum
wage=more
incentive to work if
increased and at a
younger age
- reduce
unemployment
benefits=not
getting disposable
income to meet
standards of living
- reduce trade
union power=in
interest of
workers so able
to produce
more>increased
AS
- privatisation=more
competition to be
the leading firm.
likely to use
factors of
production more
efficiently as
formally owned by
the govt
- limitations
- reduce income
tax=won't increase
labour force
(people don't want
to work/can't find
work)
- removal of
NMW=company
has less power
than employee to
negotiate wages
- reduce unemploymt
benefits=reduce
benefits>reduce level
of consump of
unemployd>lack of
demand for some
firms>cut costs by
incr unemp>high
unemploymt
- reduce trade union
power=more expensive
for firms to negotiate
individually and time
consuming>influx of
redundancy
- reduce income
tax=won't increase
labour force
(people don't want
to work/can't find
work)
- education and
training=increase
quality and
quantity of
workforce (more
skilled labourers)
- International
trade:exchange
of goods and
services
between
countries
- benefits
- higher AD, larger target market, range and variety,
better quality goods, profit/higher sales, lower prices
- higher AD, larger target market, range and variety,
better quality goods, profit/higher sales, lower prices
- what makes
this possible
- free trade, advanced technology, planes, MNCs, specialisation
in certain economies, more firms to choose from
- free trade, advanced technology, planes, MNCs, specialisation
in certain economies, more firms to choose from
- free trade: when there are no barriers to trade, thus
allowing goods and services to move freely between
countries
- protectionism: restrictions that are put in place by the govt/international orgs
to prevent the free movement of goods and services between countries
- Measures
- quota:physical limit on
the number/value of
goods that can be
imported into a country
within a period of time
- aim=discourage foreign
goods,encourage domestic
consumption. effect=stop
oversupply,increase in price of
products
- who benefit? domestic
producers/workers/govt
- who lose out?
consumers (pay
more), foreign
countries, govt (in
comparison with
tariff)
- aim=discourage foreign
goods,encourage domestic
consumption. effect=stop
oversupply,increase in price of
products
- tariff:raises the prices
of imported goods
- aim=make imp goods look
less attractive, protest
domestic jobs, to increase
demand>rise in price
- limitations:encourage illegal
sale, won't necessarily stop
consumption of foreign goods,
other country may impose
retaliatory tariff,no close subst
- aim=make imp goods look
less attractive, protest
domestic jobs, to increase
demand>rise in price
- voluntary export
restraint:agreemt
between exp and imp
countries where the
exporting country
agrees to limit quant
of exp of specific gd
below a level
- why? build
international
relations, could lead
to retaliatory
imposition, less
harsh than stricter
limits
- limitations=takes
long time to form an
agreement, still
reduces ability to
export
- why? build
international
relations, could lead
to retaliatory
imposition, less
harsh than stricter
limits
- quota:physical limit on
the number/value of
goods that can be
imported into a country
within a period of time
- administrative
barriers
- red tape:lengthy and
complicated process of
paperwork that must be
completed on imported goods
- quality
standards:restrictions placed
on types of goods that can
be sold in domestic
market,or on manufact
methods to ensure safety of
the public
- embargoes:an
extreme quota/a
complete ban on
imports
- govt purchasing
powers: govt reduce
imp by favouring
domestic firms when it
places orders despite
them producing at
higher cost/LQ
- red tape:lengthy and
complicated process of
paperwork that must be
completed on imported goods
- benefits
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