Please enable JavaScript.
Coggle requires JavaScript to display documents.
Essay plans - Coggle Diagram
Essay plans
Evaluate the micro and macro policies to promote growth and development
MICRO
micro-finance loans -> greater funding for smaller businesses -> these firms can use these funds to facilitate investment projects -> greater investment boosts the I component of AD for a rise in AD and GDP -> greater investment in the long run increases the productivity of firms, especially if labour and capital saving technology/machinery is implemented -> reduces unit production costs for outward shift in AS and GDP growth
removal of government subsidies -> reduces the opportunity cost for governments -> increases funds for the government to spend on public services like education and healthcare, boosting literacy rates and life expectancy, so improves the HDI score and development -> incentivises firms to be more efficient since they have to compete with other firms now without subsidies and can do so by increasing investments (which can reduce production costs for better price competitiveness and boost quality of products for better non-price competitiveness) -> boosts AS and AD growth and previously explained, leading to GDP growth
MACRO
buffer stocks -> the government buys stock in good years to prevent prices falling and increases supply in bad years to prevent prices rising -> increased confidence and certainty within the economy as they are less affected by volatile commodity prices
greater consumer confidence to consume
greater business confidence to invest
greater government confidence to spend on public services e.g. education and healthcare to improve literacy rates and life expectancy (boosts HDI score)
greater C+I+G components of AD boosts AD and GDP growth
attracting FDI -> this increases investments from other countries/TNCS
increased infrastructure investment -> reduces transport costs for firms -> lower production costs -> outward shift in AS and GDP grows -> less geographical immobility of labour -> greater employment, wages and consumption -> AD and GDP grows
greater training/education of workforce -> greater skills and qualifications -> reduced occupational immobility of labour -> increased employment and size of workforce -> greater productivity of the workforce -> reduced unit labour costs -> outward shift in AS and GDP grows
MICRO eval
depends on what firms choose to do with loans, they may just distribute among shareholders and owners
depends on whether banks/government that lends is corrupt or not, they may only lend to their friends or families businesses -> doesn't help develop the country as a whole
most often very small scale projects so may not help to boost development nationally
time lag to have any impact on AS since it takes a long time for investment projects to be completed
depends on magnitude of the loans, where businesses may still struggle to invest smaller loans
firms may not be able to become more efficient so they may shut down, since they had perhaps become over-reliant on subsidies -> greater unemployment -> reduces workforce size -> holds back AS, growth and development
the government may be corrupt and not use the extra funds to spend on public services so doesn't help to boost growth or development
MACRO eval
depends on how well equipped the government is to facilitate this strategy, where they may lack information to do this properly -> could cause waste of scarce resources especially if perishable e.g. bananas
opportunity cost of money the government could be spending directly on public services
worsens the fiscal position and national debt if the government has to borrow more to fund spending
may cause social unrest if they have to rise taxes or cut back in other areas of spending to fund this policy
depends on population growth where if this is greater than GDP rise, then GDP per capita decreases and HDI score, thus development worsens
government may have to pay back debt on loans from TNCs/countries that invest which creates an opportunity cost of money they could be using on development projects, and could make the country less attractive for FDI in the future
the countries/TNCs that invest may do so in corrupt ways -> they may hire workers on low wages and poor working conditions causing low incomes and well-being to persist
impacts of outward shift in AS depends on the elasticity of the AD curve
impacts of outward shift in AD depends on the position of the country on the LRAS curve, the elasticity of the AS curve and the value of the multiplier
Other policies
devalue the exchange rate
allow floating exchange rate system
privatisation
protectionism
trade liberalisation
increased government spending on education, healthcare and infrastructure
Evaluate the micro and macro impacts of a rise in the minimum wage
MICRO
increased demand for normal goods due to positive YED value -> rise in incomes increases demand for normal goods -> greater revenues for firms selling normal goods -> increased AR and MR -> greater profits -> increased returns to shareholders and owners -> increased funds to reinvest in R+D and innovation -> increased dynamic efficiency -> greater quality and range of products increases consumer choice and satisfaction
increased wage costs for firms -> increased variable costs -> greater AC and MC -> decreased profits and could create a loss -> less returns to shareholders and owners, less dynamic efficiency -> firms may have to shut down -> rising unemployment
MACRO
decreased income inequality since the incomes of people with the lowest wages increases -> inward shift of the Lorenz curve from l1 to l2 closer to the line of perfect equality so the Gini Coefficient score may decrease closer to 0 as well
increased motivation and focus of the workforce since they are paid more and/or they fear real wage unemployment -> greater productivity of the workforce -> unit production costs decrease while the quality of products may also rise -> outward shift in AS which boosts GDP and reduces GPL -> improves price and non-price competitiveness of exports (which could improve the balance of payments if demand for and value of exports increases more than imports)
greater consumption overall due to higher incomes and purchasing power -> increased C component of AD so GDP and GPL increases
accelerator effect as firms are more incentivised to invest in capital and labour to increase capacity to supply to meet rising demand -> greater I component of AD so GDP and GPL increases
MICRO eval
decreased demand for inferior goods due to negative YED value showing that different firms will be impacted very differently, since these firms will experience less revenue, thus less profits (depending on how negative the YED value is)
depends on YED value, where the higher this is, then demand rises more than incomes rise, so revenue and profits will increase even more
depends on magnitude of min wage rise where a rise by 10% has more significant effects than a rise by 2%
depends on other costs -> if other costs are falling e.g. rent and raw materials this could either cause costs to not rise as much, at all or costs could actually fall
depends on the % of total costs that are wage costs/the labour intensiveness -> social care industries may struggle with rising costs much more since wages are a higher % of total costs due to being more labour intensive
depends on whether firms can replace labour with capital for lower costs -> manufacturing firms can easily do this so may not suffer with rising costs at all
short run shut down theory where firms can continue to operate at a loss as long as their AVC is less than or equal to their AR in the short run so they can cross subsidise or take out bank loans to contribute to paying back fixed costs, enabling them to stay in the market
MACRO eval
real wage unemployment could increase as this creates surplus labour
increased production costs for firms causes an inward shift of AS where GDP falls and GPL rises
the outward shifts in AD depend on
the outward shifts in AS depends on
Evaluate the micro and macro effects of a fall in interest rates in a developing country
MICRO
decreased cost of borrowing, greater returns on savings reduces incentive to save, so MPS may fall -> as a result, MPC rises
greater consumption, thus demand for goods and services increases
greater revenue and profits for firms due to outward shift in AR and MR -> firms have greater funds to reinvest in R+D and innovation for greater dynamic efficiency
MACRO
reduced demand for the currency as people may want to save in other countries with higher interest rates and returns on savings
depreciation occurs as hot money flows -> export prices fall while import prices rise -> demand and value of exports rises while the demand and value of imports falls -> improves the BoP -> AD, GDP and GPL rises
increased consumption due to those with loans not having to pay back as much each time and being cheaper to borrow money to fund spending -> greater C component, AD, GDP and GPL rises
accelerator effect and greater investment -> greater I component, AD, GDP and GPL rises
MICRO eval
dynamic efficiency may not increase if firms distribute greater profits among shareholders and owners
depends on magnitude and duration of interest rate change where if this falls by 2% for 1 year this has a more significant effect than if this falls by 0.1% for 2 months
time lag to have any effect if people are on fixed interest rates since they won't be subject to changes in interest rates in the short term
MACRO eval
less funds for banks (Harrod-Domar theory of development so may hold this back)
consumption may not rise if consumers lack confidence, tax rates are high etc
investment may not rise if business confidence is low, tax rates are high, depreciation rates are low etc
impacts of outward shift in AD depend on
impacts of outward shift in AS depend on
Evaluate the micro and macro impacts of a rise in tariffs in a country of your choice
MACRO
decreased foreign production from Q1Q4 to Q3Q2 and revenue from g+h+i to h
improved balance of payments as the demand for and value of imports decreases -> greater X-M component, so AD, GDP and GPL rises
increased government tax revenues in the area C -> improves fiscal position -> may reduce national debt if government doesn't have to borrow money to fund spending -> may facilitate greater government spending on current, capital and transfer payments -> increased G component of AD, so GDP and GPL rises
MACRO eval
decreased domestic consumption from 0Q4 to 0Q2 and decreased consumer surplus by the area a+b+c+d -> less C component of AD worsens GDP and lowers GPL
deadweight welfare loss to society at d
loss of global efficiency at b
retaliation and trade wars
case taken to the WTO which could ruin reputation within global trading markets -> could become a less attractive trading partner
depends on the PED of imports where if more inelastic then the demand for imports doesn't fall as much as prices rise so this may not decrease the value of imports, not helping to improve the BoP
MICRO eval
depends on the XED between imports and domestic products where the higher this value the closer the substitute relationship so demand for domestic goods rises more than the price for imports rises -> revenues and profits increase more
dynamic efficiency may not increase if firms choose to distribute greater profits only among shareholders and owners
increased production costs for some firms that use imports -> can increase variable costs such as raw materials and machinery -> AC and MC rise -> reduced profits or a loss is created -> less returns to shareholders and owners, less DE and firms may shut down (counter with short run shut down theory)
MICRO
increased producer surplus from e to e+a, revenue from e+f to e+f+a+b+g and domestic production from 0Q1 to 0Q3 (since the demand for domestic goods rises, being a cheaper alternative to imports, positive XED value)
increased profits for domestic firms due to outward shift in AR and MR -> increased returns to shareholders and owners -> increased funds to reinvest in R+D and innovation -> increased dynamic efficiency -> greater quality and range of products increases consumer choice and satisfaction -> protects domestic incomes and livelihoods