Key Macro Revision Topics

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Key Macro Revision Topics

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Pros and cons of globalisation (especially for developing countries)

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Pros and cons of free trade

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Pros and cons of protectionism

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Brexit - UK and EU benefits and drawbacks

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Pros and cons of exchange rate depreciation and appreciation

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Evaluating floating Vs managed/fixed exchange rate

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Causes and consequences of current account deficit

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Implications of deflation

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Effects of continued fiscal policy austerity

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Changes in taxation on aggregate demand and supply

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Effects of a decade of low interest rates and quantitative easing

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Recent regulations & reforms of financial markets affecting commercial

banks

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Importance of supply side policies to improve competitiveness

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Causes and effects of falling unemployment

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Whether growth should be a main macroeconomic objective for developing

countries

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Alternatives to GDP per capita as a measure of living standards

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Economic policies to reduce inequality

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Performance of economies within the Eurozone

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Barriers to development

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Key indicators and performance of the UK economy

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Pros and Cons of Globalisation (especially to developing countries)

Globalisation is the increasing integration between national countries in terms of trade, financial flows, ideas, information and technology.

What are the Causes of Globalisation?

Better relationships

Less protectionism

Opening up of global financial markets

People in better financial positions

Technological advances

Communication

Specialisation

Better transport

Economies of scale

Differences in tax systems

Key Arguments In Favour of Globalisation

Expected to promote efficiency and productivity and therefore higher economic growth

Quality goods at the right price will be delivered - this helps to bring down prices and increases consumer welfare

Encourages producers and consumers to reap benefits from deeper division of labour and economies of scale

Foreign capital is attracted - it augurs the advent of multinational companies who bring modern up-to-date technology in less economically developed countries

Greater opportunities for firm in less economically developed countries

Higher access to capital flows, technology, human capital, cheaper imports and larger export markets

Better international relations

Transfer of skills

Cheap manufactured goods

More consumeremr choice

Creates basic infrastructure

Dynamic efficiency gains flowing from the sharing of ideas/skills/technologies across national borders

Key Argument Against Globalisation

Feared that globalisation will promote fierce and unhealthy competition

Multinational companies may swallow the domestic producers of less economically developed countries

Potential for poor behaviour from some global multinationals - exploitation of workers, low wages, tax avoidance, failure to address environmental issues

Merely opening up the domestic economy without reaching out to foreign markets or helping industries to meet the global challenges has limited globalisation

Increase in export earnings of the less economically developed countries as a consequence of globalisation is not expected to provide great benefits.

Modern technology used by multinational companies carry the potential to make unemployment situations worse and be too technological for the workers with no expertise

Dependency on multinational companies

Culture clashes

Profits go to the companies and not to the community

"The current process of globalisation is generating unbalanced outcomes, both between and within countries" ~ Professor Joseph Stiglitz

"Wealth is being created, but too many countries and people are not sharing in it's benefits" ~ Professor Joseph Stiglitz

Imbalances Between Countries

Trade imbalances - e.g current account surpluses and deficits

Unbalanced flows of foreign direct investment between countries

Imbalances in access to global markets, ideas, health and education

Imbalances Within Countries

Rising inequality in the distribution of income and wealth

Structural differences in unemployment rates

Imbalances between rural and urban areas/different region

Why Is World Trade Growing Slowly at the Moment?

Weak economic growth in many of the world's richest countries - indeed some economists believe that Western nations are suffering from secular stagnation

Slowing pace of trade liberalisation - the big gains to trade from cutting import tariffs may have already happened

Non-tariff barriers have grown and regional trade blocs such as ASEAN have become more common in place of a new global trade agreement which remains a long way from being achieved

Rising prosperity itself - as people become richer, they spend a higher proportion of their income on service, such as education, leisure and health. Global trade in services is actually lower as a share of GD than manufactured products

Technological change - e.g 3D printers are being used to manufacture a set of order e.g aircraft equipment or artificial joints used in medicine - they no longer have to be shipped around the world

Does the UK Benefit from Globalisation?

The Benefits to the UK

Benefits from trade creation - comparative advantage and economic efficiency, importing cheaper products/technology, exports as a source of growth/economies of scale

Increased contestability of domestic markets

Freer flow of labour - the global battle for talent, skilled immigration/inflows of human capital, unemployment has been falling

Investment opportunities for British businesses - inward FDI into the UK (a source of jobs and capital), overseas investment by UK businesses (adds to GNI)

The Drawbacks to the UK

Higher structural unemployment and more low paid jobs - e.g loss of manufacturing output and jobs to lower labour cost centres, hollowing out, rise of lower-skilled jobs offering below average pay

Increased exposure to external economic shocks - increased inter-dependence and fragile global supply chains

Risk of widening income and wealth inequality - higher skilled jobs get a disproportionate reward, downward drift of real incomes in millions of low paid jobs

Environmental concerns from rapid global growth - deforestation, water scarcity, carbon emissions, risk of pandemics

Increased economic and social imbalances - regional imbalances in wealth and employment

Pros of Globalisation for Developing Countries

Increased standard of living - gives governments of developing nations access to foreign lending, when these funds are used on infrastructure including roads, health care and education, the standard of living in a country increases

Access to new markets - freer trade between countries. Domestic industries see trade barriers fall and have access to a much wider international market. The growth this generates allows companies to develop new technologies and produce new goods and services

Increased supply chains and networks

Cons of Globalisation for Developing Countries

Loss of domestic producers - multinational companies are likely to produce goods and services at a lower price and better quality and traditional economic theory suggests people will substitute in order to increase their economic welfare

Decreased employment - improvements in technology used by multinational companies is likely to replace the jobs of the domestic workers (increased automation). This also reduces the wages of workers and reduces standards of living

Lack of development - multinational companies tend to have the objective of profit maximisation and this is unlikely to help the development needs of individual countries or the local population

International Trade

The exchange of goods and services between different countries

Purpose of International Trade

To allow nations to import goods and services they need and want but can't produce domestically

Different countries have different factor endowments and that international mobility of these factors may be limited

Diversity in conditions - trade may take place because of the diversity in conditions of production among countries

Returns to scale

Benefits of International Trade

Nations can specialise in production in a certain good or service they are good at and trade other things they aren't as good at and don't have the resources for

Economies of scale - trade and increased market size allows firms to exploit scale economies and leading to lower average costs of production that may be passed onto consumers

Better uses of scarce resources

Dynamic efficiency gains - trade speeds up the pace of technological progress and innovation

Stimulation of growth/recovery - exports are an injection into the circular flow of income. Boosts to exports will have a multiplier and accelerator effects on national income

Supply side improvements from investment and greater factor mobility between counties

Drawbacks of International Trade

Economic inter-dependence

Political inter-dependence

Depletion of a nations reserves