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AO3s intl econ, AO3 micro, AO3 macro - Coggle Diagram
AO3s intl econ
Consequences of changes in the exchange rate on
economic indicators
inflation rate
cost push: depreciation = imports become more expensive, sras shifts
demand pull: depreciation = increase of (x-m), appreciation = decrease of (x-m)
economic growth
depreciation = (x-m) goes up
unemployment
if there is a depreciation, exports become more competitive and employment in export industries can increase
foreign debt
depreciation = value of debt goes up
living standards
appreciation means that imports are cheaper, standard of living goes up because of more consumer choice
current account balance
improve deficit by a depreciation
Implications of a persistent current account deficit
Worse credit ratings
Painful demand management policies to contract the economy
Depreciation of the currency (m up so supply down), or risk of speculation because people dont want to hold currencies that will fall even further
lower future standards of living
risk of default
possibility of lower eg (resources used up on the loans and deficit rather than merit goods f eks)
Implications of a persistent current account surplus
lower domestic consumption
appreciation
lower export competitiveness
insufficient domestic investment
inflation (?)
possibility of trade retaliation
Limitations of the theory of comparative advantage
specialization in one primary sector good can be dangerous for developing countries, will not allow for structural changes
trade on the basis of comparative advanage may lead to excessive specialisation
FOP and technology are assumed to be fixed
Assumes: perfect mobility of FOP, full employment of all resources, free trade, homogenous products
ignores transport costs
Standards and regulations of administrative barriers
increasing amount of red tape checks
health and safety and environmental requirements
testing inspections
valuations
packaging requirements
Effect of tariff/quota/subsidy on stakeholders
Tariff
govt revenues
consumers worse off: higher price to pay
dom producers better off: more revenue
foreign producers worse off; less rev
domestic employment in protected industries increases
income distribution: tariffs are regressive
firms are not incentivised to become more efficient
resource misallocation
Quota
govt: no effect
same as tarriff
Subsidy
domestic producers win
domestic employees win
government is worse off
taxpayers are worse off
increased inefficiency in production
exporting countries are worse off
global misallocation of resources
Effectiveness of measures to correct a persistent
current account deficit
expenditure reducing
contracting the economy, which decreases amount of imports. However, can lead to a recession due to insufficient spending and investment. Also, contractionary monetary policy will attract foreign savers and currency may appreciate because demand goes up.
expenditure switching
trade protection
restrict imports, however, the negatives of trade protection
depreciation
depreciation means increased exports and less imports but can have negative effects esp if imports are costs of raw materials for producers causing cost push inflation
supply side policies
market oriented to shift sras and lower cop, interventionist to make firms more competitive
Strengths and limitations of approaches to measuring economic development
each indicator is only able to capture a certain part of development that it measures
can present conflicting evidence (eg HDI vs HPI)
Based on statistical data:
some countries have limited capability of collecting data
data is not fully available
data may be estimated when not available
not all of the most recent data is available
definitions of variables and methods vary from country to country
Possible relationship between economic growth and economic
development
There can be economic growth without development, and some development without economic growth
allocating resources differently on the ppc can lead to economic development without growth
however, eventually resources will be exhausted and there will be a need to improve production possibilities to develop more.
For/against trade protectionism
For
protection of infant industries: however, it is difficult to determine which industries will become low cost producers, protected industries aren't incentivized to become efficient, govt may protect industries long after maturity
national security: however, firms with indirect ties get protected, leading to trade wars.
protecting domestic employment: however, industry becomes less competitive, and workers should be retrained
protecting domestic market from foreign goods: however, goes against comp. adv., if all countries make all goods they won't be produced cheaply.
prevents dumping: however, dumping is hard to prove.
avoids risk of overspecialization, protects quality standards, raises government revenues, corrects CA deficit
Against
raises domestic prices
less consumer choice
less efficient production
inefficient use of resources
no comparative advantage
the effects on various stakeholders
negative effects on GDP, APL, and employment (decrease in x-m)
decreased export competitiveness
potential for corruption
Adv and disadv of trading blocs
Adv
Trade creation
increased competition
expansion into larger markets
lower prices and greater consumer choice
increased investments
improved resource allocation
improved efficiency
political advantages
Disadv
trade diversion
threat to multilateral trade negotiations
unequal distribution of gains
loss of economic sovereignty
Adv and disadv of monetary union
Disadv
loss of domestic monetary policy
different impacts on different countries
loss of exchange rates as a mechanism for adjustment
fiscal policy is constrained by convergence requirements
loss of national government authority in economic policy making
Adv
eliminates exchange rate risk and uncertainty
encourages price transparency
eliminates transaction costs
promotes a higher level of inwards investment
low rates of inflation: lower interest rates, more investment and increased output
fixed vs floating exchange rate
fixed
high degree of certainty
requires large amounts foreign reserves
no easy way to fix a current account deficit
have to use contractionary fiscal policy to maintain low inflation
no flexibility for policy makers
floating
uncertainty for stakeholders
does not require a lot of foreign currency reserves
easy to fix a current account deficit
inflation can be fixed by currency depreciation
flexibility for policy makers
Strengths and limitations of government intervention versus market-oriented approaches to achieving economic growth and economic development
intervention
redistribution policies
provision of merit goods
market oriented
trade liberalisation
privatisation
deregulation
effects: limited effect on export growth and diversification (developing countries were not able to diversify production) also no clear link between EG and trade liberalisation
also leads to greater income inequalities. the rich get richer and the poor get poorer. when export markets open up, there are opportunities for work, but many are disadvantaged, like less educated people
Significance of different barriers to economic growth and/or
economic development
Progress toward meeting selected Sustainable Development Goals in the context of two or more countries
AO3 micro
Govt intervention in response to public goods
direct government provision: however, opportunity cost and hard to measure the expected benefit of the public good, as they are not provided by the private sector and have no price
contracting out: however, less accountable for public goods, private sector charges high prices, loss of decision making, production needs to be monitored, poor contracts, reduced quality, loses control over the services it contracts out
Responses to asymmetric information
government responses
regulation
legislation
direct provision of information
private responses
screening
signalling
Rational consumer choice
Behavioural economics in action
Business objectives
Importance of PED for firms and govt
importance of YED for firms and govt
consequences for market and stakeholders of govt intervention in the market
Strengths and limitations of government policies to correct externalities and approaches to managing common pool resources
Importance of international cooperation
Degrees of market power
Monopoly
Oligopoly
Monopolistic competition
Advantages of large firms having significant market power
Risks in markets dominated by one or a few very large firms
Government intervention in response to abuse of significant market power
AO3 macro
Appropriateness of using GDP or GNI statistics to measure economic well-being
GDP and GNI make no distinctions about the composition of output
cannot reflect achievements in education, healthcare and life expectancy
provide no information on the distribution of income and output
don't take into account leisure time
don't account for quality of life factors
do not include non marketed output
do not measure activity from the informal market
do not take into account for the value of negative externalities in production
do not take into consideration depleting natural resources
differing domestic price levels
over time: increases over time are misleading they may overestimate or underestimate tre changes in the factors mentioned.
comparison between countries: limit the validity of international comparisons because they don't measure economic wellbeing equally
Assumptions and implications of the monetarist/new classical and Keynesian models
new classical
gaps are self correcting due to free changing resource prices
increases in AD always lead to inflation
keynesian
gaps are persistent because of inability of prices to change
increases in AD dont necessarily lead to inflation
Consequences of economic growth
living standards
distribution of income
household spending
share of income controlled by women
government spending on merit goods
contributions of NGOs
the environment
environmental damage
Relative costs of unemployment versus inflation
unemployment costs
economic
loss of gdp
loss of income
loss of tax revenues
cost for the government in unemployment benefits
cost of dealing with social problems that rise from unemployment
budget deficit increases / budget surplus decreases
unequal distribution of income
unemployed people may have difficulties finding employment again
social/personal
personal problems
social problems
inflation
redistribution effects
winners: employers who pay wages, borrowers (if infl rate is higher than interest rate) employers who pay wages that increase less rapidly than the rate of inflation
losers: receivers of fixed income/wages, receivers of income/wages that increase less rapidly than the rate of inflation, holders of cash, savers, lenders
uncertainty
effects on saving
export competitiveness
effects on economic growth
social and personal costs that are unequally distributed
Potential conflict between macroeconomic objectives
High economic growth and low inflation
High economic growth and environmental sustainability
High economic growth and equity in income distribution
The impact of income and wealth inequality on economic growth, standards of living, social stability
The role of taxation in reducing poverty, income and
wealth inequalities
Further policies to reduce poverty, income and
wealth inequality
Expansionary and contractionary monetary policies to close
deflationary/recessionary and inflationary gaps
Effectiveness of monetary policy
Expansionary and contractionary fiscal policies in order to close deflationary/recessionary and inflationary gaps
Effectiveness of fiscal policy
Strengths of fiscal policy:
Effectiveness of supply-side policies