Economics examples 2018
TERM
Positive economics
DEFINITION
EXAMPLE
Economic statements that can be Unemployment in France
proven to be right or wrong by is 10.2%
looking at the facts.
Normative economics
Economic statements that are It’s not fair that Bill Gates
based upon opinion and so are not has more money than me!
capable of being proved to be right
or wrong.
Potential growth
Increase in potential output,
shown by shifting PPF. (Or LRAS
right)
Actual growth can be within PPF.
(AD right)
The growth of real output in an
economy over time.
Usually
measured as growth in real GDP.
Economic growth
Economic
development
Improvement in standards of living,
reduction in poverty, improved
health and education. (May add
increased freedom and economic
choice.)
HDI: GNI/pop at PPP, life
expectancy, years of schooling.
Very High >0.8 Canada (#9)
High > 0.7 Russia (#50)
Medium>0.55 Philippines (#115)
Low < 0.55 Nigeria (#152)
Maximum price*
A “ceiling price” imposed by an
authority. Prices cannot rise above
this price. If set below the
equilibrium price it will cause a
shortage and a parallel market.
Minimum price*
Price Elastic demand
Improvement in FoP
(education in Singapore,
Green Revolution,
infrastructure in China)
2016 % Growth rates:
China 6.4
USA 2.0
India 7.5
Greece 1.7
Brazil – 3.2
Venezuela -7.0
HDI rank and scores 2015:
1. Norway 0.944
2. Australia 0.935
3. Switzerland 0.93
8. USA 0.915
50. Russia 0.798
67. Cuba 0.769
116. South Africa
0.666
188. Niger 0.348
Maximum rent on
apartments in NY, “social
housing” in Geneva.
Max bread price in Zambia
Max price croissants in
France (Raymond Barre)
A “floor price” imposed by an Bread in France, to protect
authority. Prices cannot fall below boulangeries.
this price. If set above the market Book prices in France, to
price it will cause a surplus.
protect bookstores from
supermarkets.
Minimum wage laws: USA
$7.25 per hour, $10 or $15
proposed.
SMIC €1450 per month.
Where a change in the price of a
Peugeot or Fiat cars.
good or service leads to a greater Demand for one farmer’s
than proportional change in the
produce. PED infinite
1
quantity demanded of the good or
service. (PED > one.)
Price Inelastic demand Where a change in the price of a
good or service leads to a less than
proportional change in the quantity
demanded of the good or service.
(PED would be less than one.)
Subsidy
(undefined) in perfect
competition.
Tobacco PED about - 0.3
for adults, -0.8 for kids.
Australia $20 a pack.
WB estimate -0.4 for high
income countries, -0.8 for
low.
Tax as % of cig price:
Denmark 84%
UK 78%, Switz 52%, US
30%, China 38%,
Zimbabwe 80%.
An amount of money paid by the Paris metro, one third of
government to a firm, per unit of revenue from fares (merit
output.
good.)
Indirect tax
Tax on expenditure. It is added to
the selling price of a good or
service. Excise duty is for a
specific good.
Fixed costs
Costs that do not change with the
level of output/ cost of producing
nothing
Variable costs
Costs that vary with output
Total costs
Marginal costs
Fixed + variable costs
The additional cost of making one
more unit.
Economic cost
Accounting cost plus opportunity
cost, It includes normal profit (cost
of the entrepreneur.)
Economies of scale
A fall in long run unit costs that
come from a firm increasing scale
of production.
Diseconomies of scale
When LR average costs increase
from a firm increasing scale of
production. (Rising LRAC)
Oligopoly
Dominated by a few firms. CR4
about 50%.
Dominated one firm
Many firms producing
differentiated goods or services.
SR abnormal profit, LR normal.
Many firms, identical goods, no
barriers to entry or exit, perfect
Monopoly
Monopolistic
competition
Perfect competition
VAT rates :
France 20%
Greece 23%
UK 20%
Switzerland 8%
Rent, depreciation,
(parking, internet
businesses etc. lots have
basically only fixed costs)
Raw materials, wages,
meat in a burger.
Many products have
almost zero marginal cost:
online things, like itunes
and stuff
A lawyer with her own firm
has opportunity cost of
salary she could earn from
Philip Morris.
Bulk buying (Walmart),
lower transport costs
(Migros), branding (Coca
Cola) easier credit
(Nestlés)
Management problems of
communication: General
motors, Daimler Chrysler,
UBS
Soft drinks, sports shoes
Google,
Restaurants, hairdressers,
live music
Wheat farmers in Canada
2
Law of Diminishing
Returns
knowledge. SR abnormal profit,
LR normal.
When adding one more of an input
adds less output than the previous
input. (SR with other factors fixed)
Employing more workers
or tractors
Cross price elasticity the responsiveness of the demand
XED
for one good or service to a change
in the price of another good or
service.
Income elasticity of
demand YED
Allocative efficiency
Productive efficiency
Complements: Gillette
sells razors at low price to
sell more expensive
blades, HP with printers
and ink. XED<0
Substitutes: Swiss airlines
responds to lower prices
offered by easyJet. XED>0
The responsiveness of the demand Normal goods have
for a good or service to a change in positive YED: increased
income.
income means more QD.
Cars, chocolate.
Inferior goods have
negative YED: budget
brands
The level of output where marginal Perfect competition in LR
cost is equal to average revenue.
and SR equilibrium.
(MC = AR) The firm sells the last
unit it produces at the amount that
it cost to make it. Maximizes
community surplus and so is best
for society. If externalities are
included it is where MSB = MSC.
When production is achieved at Perfect competition in LR
lowest cost per unit of output. equilibrium.
MC=AC at bottom of ATC.
Dynamic efficiency
Takes into account the potential
future benefits.
Creative destruction
Monopoly profits provide incentive
for improved or new products
Low barriers to entry and exit
mean that new firms could enter if
profit margins were very high.
The failure of free markets to
produce at the point where
community surplus (consumer
surplus + producer surplus) is
maximised. If externalities are
included it means MSB is not equal
to MSC.
Contestable market
Market failure
Government failure
When government intervention
results in a welfare loss.
Lower production costs
from R&D or economies of
scale.
Nokia to Blackberry to
iphone.
Toy dinosaurs after
Jurassic Park movie, new
airline routes.
Overconsumption of
tobacco, junk food or
petrol.
Pollution, environmental
destruction, climate
change, overfishing
Max prices cause
shortage, min prices cause
surplus. Taxes,
3
Merit goods
Demerit goods
Positive externalities*
protectionism or subsidies
create a net welfare loss
(deadweight loss)
Goods or services considered to Education, health care
be beneficial for people that would (vaccinations), condoms
be under-provided by the market or
under-consumed.
(Often have positive externalities.)
Considered socially undesirable,
overprovided by free market.
(Often have negative
externalities.)
Cigarettes, junk food,
alcohol.
EU average smokers 28%,
# of cigs fallen from 84bn
to 47bn since 2001 but
now increasing, esp for
girls (29%of students in
France,
Beneficial effects that are enjoyed Condoms, education,
by a third party (or society) when a public transport
good or service is produced or
consumed.
Negative externalities*
Harmful, “bad” effects that are Passive smoking, drunk
suffered by a third party when a driving, loss of biodiversity.
good or service is produced or
consumed.
Collusion/ collusive
oligopoly
Where a few firms act together to
avoid competition by resorting to
agreements to fix prices or output
in an oligopoly.
Non-collusive
oligopoly
Where firms in an oligopoly do not
resort to agreements to fix prices or
output. Competition tends to be
non-price. Prices tend to be stable.
(May have “kinked demand
curve.”)
Price war
When firms compete by lowering Aldi and Lidl in UK
prices to increase market share.
“supermarket wars.”
Ryanair and easyJet
against “traditional
airlines.”
A group of firms in an industry that Central Selling
join together to fix prices or output Organisation of De Beers
levels. These are usually illegal in diamonds.
most countries.
Cartel
Barriers to entry
OPEC (though this is for
countries), Paris 5* hotels,
Sotheby’s and Christies,
European vitamin pill
makers, banks fixing
LIBOR interest rates.
Tobacco firms that match
prices without making an
agreement to do so.
Car firms like Renault, Fiat
and Citroen.
Obstacles in the way of potential 20 year patents on
newcomers to a market, such as pharmaceuticals, which
4
Natural monopoly
economies of scale, product then become ”generic”
differentiation, and legal protection thus “saving $158 billion in
like patents.
USA health costs in 2010
alone.”
A situation where there are only Public utilities like gas and
enough economies of scale electricity are often
available in a market to support “natural monopolies” and
one firm. Thus it is more efficient to are sometimes
have only one firm.
nationalized.
Price discrimination
This occurs when a producer
charges a different price to
different customers for an identical
good or service.
Tradable permits
They are permits to pollute, issued Carbon trading as part of
by a governing body, which sets a Kyoto protocol on climate
maximum amount of pollution change.
allowable. Firms may trade these
permits for money.
Section 2
Circular
income*
flow
“Home fees”, “girls enter
free”, reduced price for old
age pensioners, or
students.
Deals with the economy as
a whole.
of A simplified model of the economy Shows income,
that shows the flow of money expenditure, injections and
through the economy.
withdrawals (leakages.)
Macroeconomics
Gross national
product
The total money value of all final
goods and services produced in an
economy in one year, plus net
property income from abroad
(interest, rent, dividends and
profit).
(Profits from MNCs)
GNP=GDP + net property
income
(GNP=GDP + net
investment earnings)
GNP>GDP in Switzerland
GDP>GNP in Brazil
Net national product
GNP [the total money value of all GNP – depreciation =NNP
final goods and services produced
in an economy in one year, plus net
property income from abroad
(interest, rent, dividends and
profit)] minus depreciation (capital
consumption).
Nominal GDP
The total money value of all final
goods and services produced in an
economy in one year, not adjusted
for inflation.
Real GDP
the total money value of all final
goods and services produced in
an economy in one year, adjusted
for inflation.
RGDP = NGDP/GDP
deflator
5
Per capita GDP
The total money value of all final
goods and services produced in an
economy in one year per head of
the population.
Aggregate demand*
The total spending in an economy Increased AD causes
consisting
of
consumption, inflation if the economy is
investment,
government at full employment.
expenditure and net exports.
( AD = C+I+G+(X-M) )
Deflationary gap
When total spending (aggregate Unemployment over 25%
demand) is less than the full in Spain and Greece after
employment level of output, thus 2008 GFC.
causing unemployment.
Demand-side policy
Government policy designed to Fiscal and /or monetary
influence the aggregate demand in policies to boost AD after
the economy, thus affecting the GFC in 2008.
average price level and real
national output.
Fiscal policy
Demand-side policy using changes
in government spending and/or
direct taxation to achieve economic
objectives relating to inflation and
unemployment.
Monetary policy
Demand-side policy using changes
in the money supply or interest
rates
to
achieve
economic
objectives relating to inflation and
unemployment.
Aggregate supply*
The total amount of domestic
goods and services supplied by
businesses and the government,
including both consumer goods
and capital goods.
Short run aggregate
supply (SRAS
Aggregate supply that varies with
the level of demand for goods and
services and that is shifted by
changes in the costs of factors of
production.
Long run aggregate
supply (LRAS
GDP/population
Countries with rapid popn
growth need to have more
rapid increase in GDP
(Kenya, Egypt)
GW Bush 2008 $600bn
tax rebates,
Obama 2009 $1.2 trillion in
increased G spending
(“fiscal stimulus”)
Trump tax cuts despite
$21 trillion national debt
“QE” Quantitative Easing”
by the US Fed, B of E,
BoJ.
Fed 2012 (Ben Bernanke)
increased QE to $85bn per
month of asset buying.
March 2016, ECB (Mario
Draghi) increased its
monthly bond purchases
to €80 billion
Supply side expansion in
1990s, (Clinton) as
globalization, internet,
trade agreements.
The short run AS curve is
drawn given some nominal
variables such as the
nominal wage rate, which
is assumed fixed in the
short run.
Aggregate
supply
that
is In the neoclassical long
dependent upon the resources in run, on the other hand, the
6
the economy and that can only be
increased by improvements in the
quantity and/or quality of factors of
production.
Supply-side policies
nominal wage rate varies
with economic conditions.
(High unemployment leads
to falling nominal wages
and restores full
employment.) Hence in the
long run the aggregate
supply curve is vertical.
Government policies designed to These can be « market
shift the long run aggregate supply based » (Chicago) or
curve to the right, thus increasing « interventionist »
potential output in the economy.
(Swedish model. »
Market based Supplyside policies
Policies to allow the free market to
function without government
restrictions.
(Reagan, Thatcher, Hayek, Milton
Friedman)
Interventionist Supplyside policies
Government policies designed to
improve on the free market. Used
in Sweden, Denmark. Generally
supported by Keynesian
economists.
Unemployment
People in the labour force without a
job, who are actively seeking work.
Unemployment Rate
# unemployed/labour force
#unemployed/
employed +unemployed
Full employment
Exists when the number of jobs
available in an economy is equal to
or greater than the number of
people actively seeking work.
Underemployment
When workers are carrying out
jobs for which they are overqualified, not using their full skills
and abilities or when they are
working part-time but wishing
more hours.
Unemployment caused by a
permanent fall in the demand for a
particular type of labour. There is
a mismatch between skills and the
jobs available.
Structural
unemployment
Lower income and
corporation tax to increase
incentives.
Deregulation
Lower U benefits
Weaken labour unions
Privatisation
Lower minimum wage
Retraining (Denmark
« flexicurity » flexible
labour market plus social
welfare)
Infrastructure
R&D
Export promotion.
Excludes : homemakers,
disabled, prisoners, long
term discouraged,
underemployed,
April 2016 % U rates :
China 4.1
USA 4.9
Greece 24.0
Britain 5.1
France 10.2
Sometimes called the
natural rate of U,
equilibrium U or voluntary
U. (About 5% in USA)
Qualified Spanish
architects with part-time
jobs as waiters.
Automation in car factories
Coal mines run out of coal
Outsourcing call centre
jobs to India
7
Frictional
unemployment
Demand deficient /
cyclical
unemployment*
Real wage/classical U
Inflation
Demand-pull inflation*
Cost-push inflation*
Deflation
Phillips curve (HL
only)*
Italian textile workers v
Bangladesh
UK steel (Tata) v China
Equilibrium unemployment that Recent graduates
exists when people have left a job Mothers returning to
and are in the process of searching workforce
for another job.
Switching jobs
Falling
AD.
Disequilibrium
unemployment that exists when
there is insufficient
aggregate
demand in the economy.
Wages in the economy get pushed
up above the equilibrium wage
rate, either by the government or
by trades unions.
Made worse if wages
are « downwardly sticky. »
U > 25% in Greece and
Spain after 2008 GFC.
Minimum wage laws: USA
$7.25 per hour, $10 or $15
proposed.
France SMIC €1450 per
month.
A sustained increase in the general Zimbabwe 76bn % in one
(or average) level of prices and a month 2008 !
fall in the value of money.
Inflation that is caused by Increased wages in China
increasing aggregate demand in
an economy, i.e. a shift of the AD
curve to the right.
Iinflation that is caused by an 1970s oil shocks,
increase in the costs of production « stagflation »
in an economy, i.e. a shift of the
SRAS curve to the left.
A persistent fall in the average Japan.
level of prices in an economy.
Greece since 2008
(malign fall in AD)
Switzerland (benign?) after
appreciation.
A curve showing an inverse Under President Reagan
relationship between the and Prime Minister
rate of unemployment and Margaret Thatcher in the
the rate of inflation, which 1980s there was a decline
suggests
a
trade-off in inflation, but at the cost
between
inflation
and of a big rise in
unemployment (short run unemployment.
Phillips curve). The vertical
long run Phillips curve
shows the monetarist view
that there is no trade-off
between
inflation
and
unemployment in the long
run and that there exists a
natural
rate
of
unemployment that can
only be affected by supplyside policies.
8
Natural rate of
unemployment (HL
only)*
The rate of unemployment that is
consistent with a stable rate of
inflation. It is the rate where the
long run Phillips curve touches the
x-axis.
Direct taxation
Taxation imposed on people’s
income or wealth, and on firms’
profits.
Indirect taxation
Tax on expenditure. It is added to
the selling price of a good or
service. It is sometimes known as
sales tax.
Progressive taxation –
Direct taxation where tax is levied
at an increasing rate for successive
bands of income. The marginal tax
rate is higher than the average tax
rate.
Excludes cyclical U. Can
be altered by supply side
reforms like increased
flexibility of labour market.
Estimated NRU: USA 5%,
France 9%, Switz 3%.
Top tax rates:
Belgium 64%,
Sweden 60%,
USA 56%
(Fed+state+local)
Japan
50%
UK
45%
S Africa 42%
Russia 13% (flat)
UAE
0%
VAT rates :
France 20%
Greece 23%
UK 20%
Switzerland 8%
Francois Hollande
proposed a top marginal
tax rate of 75% on
earnings over €1m but it
was not introduced. (Some
rich left France.)
Regressive taxation
Takes a greater proportion of
income from the low-income
taxpayer than from the highincome taxpayer.
Tax on cigarettes, VAT. (As
low income people have
higher mpc and lower
savings rates.)
Proportional taxation
A system of taxation in which Hong Kong, Singapore,
tax is a constant % of income Russia have « flat tax. »
for example 15% of income.
Transfer payments
A payment received for which U benefits, old age
no good or service is pensions, family allowance.
exchanged, e.g. a student
grant or a pension.
Laffer Curve (HL only)
A curve showing the possible
relationship between income
tax rates and the total tax
revenue received by the
government.
Lorenz Curve
A curve showing distribution
of the total income in the
economy. It is calculated in
cumulative terms.
The
Implies high marginal
income tax rates might
reduce tax revenue.
High taxes have disincentive
effect and increase tax
evasion.
9
further the curve is from the
line of absolute equality (45
degree line), the more
unequal is the distribution of
income.
Gini coefficient
Measures the ratio of the Gini coefficients :
area between a Lorenz curve
and the line of absolute
equality to the total area
under the line of equality.
The higher the figure, the
more
unequal
is
the
distribution.
SECTION 3
INTERNATIONAL
ECONOMICS
 Free
trade
–
international
trade
that
takes
place
without any barriers,
such
as
tariffs,
quotas, or subsidies.
Free trade
International trade that takes Trade within the EU.
place without any barriers, FTA between China and
such as tariffs, quotas, or Switzerland.
subsidies.
Tariff*
A duty (tax) that is placed GW Bush 35% tariff on
upon imports to protect imported steel.
domestic industries from
foreign competition and to
raise
revenue
for
the
government.
Quota*
Import barriers that set limits
on the quantity or value of
imports that may be imported
into a country.
Subsidy*
Voluntary export restraint
(VER)
Swiss wine producers were
once protected by a quota
on imported wine. (Also
limits on meat imports from
cross-border shopping.)
An amount of money paid by China is accused of unfair
the government to a firm, per subsidies to steel firms.
unit of output, to encourage
output and to give the firm an
advantage
over
foreign
competition.
A voluntary agreement
between an exporting
country and an importing
country that limits the
volume of trade in a
particular product (or
products).
1980s Japan agreed to
reduce car exports to USA.
10
Infant industry argument
The argument that new
industries
should
be
protected
from
foreign
competition until they are
large enough to achieve
economies of scale that will
allow them to be competitive.
Indian car industry protected
for 50 years. (Result was
little progress and no
competition for Ambassador
car.)
Dumping
It is the selling of a good in
another country at a price
below its unit cost of
production.
China accused of dumping
steel, solar panels.
EU dumping agricultural
surplus (sugar).
Anti-dumping
Legislation to protect an
economy
against
the
importing of a good at a price
below its unit cost of
production.
Anti-dumping duties on
Chinese solar panels by EU
and USA. (But maybe China
has absolute and
comparative advantage?)
Free trade area (FTA)
An
agreement
made NAFTA (USA, Canada,
between countries, where the Mexico) increased trade
countries agree to trade between them.
freely among themselves,
but are able to trade with
countries outside the free
trade area in whatever way
they wish.
Customs union
An
agreement
made When UK joined the EEC
between countries, where the tariffs were imposed on
countries agree to trade dairy produce from NZ.
freely among themselves,
and they also agree to adopt
common external barriers
against
any
country
attempting to import into the
customs union.
Common market
A customs union with 1957 EEC meant Italians
common policies on product could migrate freely to
regulation,
and
free Germany for work.
movement
of
goods,
services, capital, and labour.
Trade creation (HL only)
Occurs when the entry of a USA importing more from
country into a customs union Mexico.
or FTA leads to the
production of a good moving
from a high-cost producer to
a low-cost producer.
Trade diversion (HL only)
Occurs when the entry of a UK importing butter from
country into a customs union Denmark instead of NZ.
leads to the production of a
11
good moving from a low-cost
producer to a high-cost
producer.
World Trade Organisation
An international body that
sets the rules for global
trading and resolves disputes
between
its
member
countries.
It also hosts
negotiations concerning the
reduction of trade barriers
between its member nations.
Balance of payments
A record of the value of all the
transactions between the
residents of a country with
the residents of all other
countries over a given time
period.
Balance of trade
A measure of the revenue
received from the exports of
tangible goods minus the
expenditure on the imports
of tangible goods over a
given period of time
A measure of the revenue
received from the exports of
services
minus
the
expenditure on the imports of
services over a given period
of time.
Invisible balance
Expenditure-switching
policies
Expenditure-reducing
policies
Marshall-Lerner condition
(HL only)
Set up at end of Uruguay
Round of GATT talks 1994.
2001 start of Doha
Development Round, minor
progress made in 2013,
Bali, but talks not
concluded.
Policies implemented by the
government that attempt to
switch the expenditure of
domestic consumers away
from imports towards
domestically produced
goods and services
Policies implemented by the
government that attempt to
reduce overall expenditure in
the
economy,
including
expenditure on imports.
Protectionism: 35% tariffs
on imported steel to help US
Steel (GW Bush 2001)
Depreciation: “currency
manipulation” by China and
Japan.
States that a depreciation, or
devaluation, of a currency will
only lead to an improvement
in the current account
balance if the elasticity of
demand for exports plus the
CAB of UK and Italy
improved after depreciation
in 1992 (“Black
Wednesday”.)
However Swiss CAB
improved after appreciation
Causes recession by
reducing AD!
12
elasticity of demand for as PED for M and X is
imports is greater than one.
inelastic.
J-Curve (HL only
Suggests that in the short UK 1992-94
term, even if the MarshallLerner condition is fulfilled, a
fall in the value of the
currency will lead to a
worsening of the current
account deficit, before things
improve in the long term.
Terms of trade
An index that shows the
value of a country’s average
export prices relative to their
average import prices.
Deteriorating terms of
trade/adverse terms of
trade
Where the average price of
exports falls relative to the
average price of imports.
Also called “unfavourable
movement.”
Index of export prices/index
of import prices X 100 =ToT
index.
Swiss ToT improves if oil
prices fall.
LEDCs exporting primary
products (commodities)
have often suffered from
falling prices (Ethiopian
coffee.)
Elasticity of demand for
exports
The responsiveness of the
quantity
demanded
of
exports when there is a
change in the price of
exports.
Demand for Japanese cars
is relatively elastic
(substitutes) so depreciation
of Yen will increase export
revenue.
Elasticity of demand for
imports
The responsiveness of the Demand for oil in Europe is
quantity
demanded
of inelastic so a fall in oil prices
exports when there is a will improve CAB.
change in the price of
exports.
Section 4
Development
Economics
Poverty cycle
A circular chain of events
starting and ending in
poverty, such as low income
means low savings means
low investment means low
growth means low incomes.
Infrastructure
The large scale public Roads, railways, sanitation,
systems,
services,
and ports, electricity supply
facilities of a country that are
necessary for economic
activity.
They
are
accumulated
through
investment, usually by the
government.
13
Indebtedness
Relates to the high levels of HIPCs (highly indebted poor
debt
that
developing countries) have been given
countries owe to developed Conditional Debt Relief.
countries. The repayments
on this debt act as a
significant barrier to growth
for developing countries.
Capital flight
When money and other Nigeria has more than
assets flow out of a country to $100bn of flight capital.
seek a “safe haven” in
another country.
Bilateral aid
Aid that is given directly from China building a dam in
one country to another.
Zimbabwe.
Multilateral aid
Aid that is given to World Bank loan to Ethiopia
international aid agencies,
such as the World Bank, and
then distributed by the
agencies.
Tied aid grants or loans that
are given to a country, but
only on the condition that the
funds are used to buy goods
and services from the donor
country.
54% of US aid is tied. Can
result “round trip” where
money
ends
up
with
American firms.
Unofficial aid
Aid that is organised by a Medecins Sans Frontières in
non-government
Iraq.
organisation, such as Oxfam. « Bottom up » aid.
Official aid
Aid that is provided to a German government to
country
by
another Tanzanian government.
government or an official
government agency. It may
be multilateral or bilateral in
nature.
Export-led growth
(outward-oriented
strategies)
Strategies
based
on Hong Kong, Singapore, S
openness and increased Korea, Malaysia
international trade. Growth is
achieved by concentrating on
increasing
exports,
and
export revenue, as a leading
factor in the AD of the
economy.
Growth in the
international market should
be translated into growth in
14
the domestic market, over
time.
Import substitution
(inward-oriented
strategies / protectionism)
Strategies to encourage the India from 1947 till early
domestic
production
of 1990s.
goods, rather than importing
them. It should mean that
industries producing the
goods domestically should
grow, as will the economy,
and
then
should
be
competitive on world markets
in the future. The strategies
encourage protectionism.
.
Sustainable development
Development that meets the Reforestation, sustainable
needs of the present without logging, increased use of
compromising the ability of solar power.
future generations to meet
their own needs.
Fairtrade
a scheme where products Max Havelaar,
from producers in developing “Fair trade”bananas, coffee.
countries can be certified to
display
the
registered
Fairtrade mark encouraging
consumers to buy them
because they know that the
producers of the products
have been paid a fair price
and the products have been
produced under approved
conditions.
Micro-credit/micro loans
Small loans usually given to Grameen Banks in
enable poor people to start Bangladesh. Lend mainly to
up
very
small-scale women.
businesses in developing
countries.
Foreign Direct Investment
(FDI)
Long term investment by Honda factory in South
multinational corporations in Africa.
another country.
The World Bank
An organisation whose main
aims are to provide aid and
advice
to
developing
countries, as well as reducing
poverty
levels
and
encouraging
and
safeguarding
international
investment.
“Our dream is a world
without poverty.”
But many people doubt its
effectiveness.
15
The International
Monetary Fund (IMF
An organisation working to IMF policies like Structural
foster
global
monetary Adjustment Programs are
cooperation, secure financial widely criticized.
stability,
facilitate
 Depreciate
international
trade,
and
 Cut government
reduce poverty.
spending
 Free Trade
 Raise interest rates
 Free capital flows
16