4.5.4

Question 1

Measures to reduce fiscal deficits and national debts:

Answer 1

• Budget deficits could be reduced with less gov spending and higher taxes.
  BUT: lower econ growth, could lead to gov finances fall in LT as tax rev falls. Has bad demand side impacts
• Economic growth could be promoted to reduce a deficit = more taxes
• Gov can issue bonds to raise finance, BUT, interest requires repayment at some point.
• Governments could choose to default on debt, BUT makes it harder to access credit in the future

Question 2

Measures to reduce poverty and inequality

Answer 2

• Income redistribution and wage equality through gov, like inheritance taxes.
• Economic growth can reduce absolute poverty
• Could implement progressive taxes
  Make education and healthcare more widely available

Question 3

Changes in IR and supply of money

Answer 3

• Use monetary policy to stimulate economy and raise gov revenue.
• Could use quantities easing to stimulate economy

Question 4

Measures to increase international competitiveness

Answer 4

• Reduce relative unit labour costs - by increasing productivity, or reducing wages overall.
• Wages can be reduced with lower migration barriers as competition for employment rises, and productivity can be increased with supply side investment, or demand side policies like lower interest rates

Question 5

Use and impact of macroeconomic policies to respond to external shocks to global economy

Answer 5

• After 08 crisis, the economic decline of the Eurozone led to a significant decrease of the Uks exports due to the interdependence caused by globalisation.
• UK MPC reacted to this by lowering iR to 0.5%, historic low to encourage economic growth. As they were approaching a liquidity trap, they employed a QE scheme too

Question 6

Measures to control TNC operations

Answer 6

• Regulation of transfer pricing - basically enforcing the domestic tax laws on TNCs which try exploit taxation systems by bouncing about.
• Limits to gov ability to control TNCs - tax rules are difficult to apply and regulate, costs to HMRC to challenge dishonest firms

Question 7

Problems facing policy makers when applying policies

Answer 7

• Inaccurate info - policies may be decided without perfect info = law of UC
• Risks and uncertainties
• Normative judgements
• Regulatory capture
• Inability to control external shocks