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Economics Revision BASIC

Terms in this set (171)

1) Improve labour flexibility through weakening power of trade unions (criticised for forcing up wages & resisting the introduction of new working practices and new technology-->preventing productivity from improving) by introducing anti-trade union legislation to weaken them and help labour market work more freely e.g.:
-closed shops illegal
-secret ballots before strikes
-secondary picketing illegal
-wage councils abolished
(RESULT: less disruption when new working practices and new technologies introduced & fewer wage-related strikes HOWEVER there may be less work protection)

2)Restoring incentives by reducing taxes, especially income tax and corporation tax (may reduce incentive to work or discourage people from setting up or developing businesses e.g. workers take more holidays, retire earlier or refuse overtime, highly productive people emigrate to countries of lower tax, entrepreneurs less risky and take less business opportunities)

3)Increase quality of labour through improving human capital via education and training (improve labour productivity-->increase AS):
-encourage more to enter university
-vocational courses
-more people staying for sixth-form education
-AS levels introduced
-modern apprenticeships (partly government funded on-the-job training schemes )

4)Increase quantity of labour/size of workforce (more output can be produced)e.g. in UK:
-more retired people choose to work
-EU legislation gives EU citizens right to work in any EU country
-growth in EU
-changing role of women in society-->more work
1) Supply side policies will not reduce unemployment caused by a fall in aggregate demand (demand-deficient unemployment) or cyclical unemployment. They can only reduce long term structural unemployment.

2) Long-term--> effects may not be evident short-term (long time to reduce inflationary pressures--> monetary policy more effective and structural unemployment)

3) No guarantee that government supply side policies actually reduce unemployment e.g. people may be unwilling to go on training schemes. If it is easier, due to weakened power of trade unions (less job protection e.g. no negotiating pay and working conditions or strike pay benefits) and increased labour market flexibility, to hire and fire workers temporary unemployment may increase

4)Reduce costs and increase productivity for firms--> lower inflation (reduced change of cost-pull inflation)

5)Increased productivity can also help the balance of payments. If firms become more competitive, goods of the country will be in greater demand, increasing exports and improving the current account deficit

6)May reduce structural unemployment by providing employment subsidies for firms, improving flexibility in labour market, providing job training for unemployed etc.

7) AS increase-->economy has greater productive potential--> economic growth

8) Human capital improves in the long-run--> less unemployment in future (more qualified for jobs + less structural unemployment)

9) Productivity of domestic firms rise--> can compete with overseas firms easier

10) Privatisation may increase unemployment in short run: private firms invest more on machinery & shed labour to improve efficiency and reduce costs
- FDI—>extra output and employment—>economic growth—>GDP increase
- Income increased due to extra output and employment—> raised living standards
- Multinational profits taxed by host nation—>increase in tax revenue—>more money to improve government services
- New technologies and working practices introduced into developing countries (e.g. multinationals provide training and technical assistance & purchase resources and modernise production facilities—> assist local suppliers)
- Workers learn new skills as a result of training from multinationals & governments in LEDCs tend to spend more on education and training to attract FDI—>improvement in quality of human capital
- Arrival of multinationals—>may provide encouragement and the skills required to develop new businesses (e.g. encourage locals to supply commercial services such as transport, accommodation, leisure and property maintenance)—>enterprise development in LEDCS
- Free trade encouraged—>FDI—>output generated by multinational accounted as output for host country—>output sold recorded as an export—> increase in exports—> helps LEDCs increase their foreign currency reserves and improve their balance of payments on current account (Tourism counted as an invisible export —>globalisation increases tourists—> benefit LEDCs as exports rise)
- Reduces debt for LEDCS:
~Globalisation raises national income—> easier to repay debt owed to MEDCs—> debt reduced
~MEDCs wealthier—> may give more development aid & cancel debts
- Environmental damage:
~Economies grow—> more cars purchased and flights taken—> increases greenhouse gasses-->global warming
~More non-renewable resources such as, oil, gas, coal are used—> long-term disadvantage (future generation will have fewer resources)
~Certain species becoming extinct as their habitats are being taken for production e.g. deforestation—> land used for agriculture
- Encourages firms to move from one place to another in attempt to seek cheaper labour—>rising unemployment in the place they leave
- Possible exploitation of LEDCs
~Rely on primary products & primary sector—>low income elasticity of demand and do not help them grow—>demand grows slowly with economic growth & prices often change sharply which can cause fluctuations in income for the nation
~Multinationals may provide poor working conditions for locals-- low wages & child labour
~Resources are extracted and sold with little money given to host nation
~Taxes paid to host nation are minimal—>nation does not benefit much
~Little profit put back into host nation in order to increase profits repatriated
~Negative impacts on local or domestic businesses due to strong competition (infant industries snuffed out)
- Higher commodity prices: only some nations benefitted (produce copper, cold, iron ore), others didn't e.g. prices of rice and wheat surge due to rapid global growth in the 2000s, these are often the main food sources for developing nations—> people there suffer as they cannot afford it due to price increase
- Interdependence—>economic events in one country affect other countries e.g. 2008 recession in US—> world recession as due to free flow of capital, bad debt was brought by banks from other countries ('credit crunch' in USA and the West—>China significant fall in GDP due to falling export demand—> growth fell from 9% to 7%)
- Development gap—>countries have different development pace and growth: increased income disparity (gap between rich and poor) & LEDCs worse & MEDCs better; some argue MEDCs benefit most from globalisation—> have the resources to exploit forces of globalisation
- Bureaucracy (multinationals too large)
- Undemocratic: rules written by and for corporations—> ignores views of consumers, environmentalists, human rights and labour organisations
- Favours rights of corporations over that of workers. E.g. illegal for a government to ban a product based on the way it was produced, such as child labour + government cannot take into account 'non commercial values' such as human rights when making purchasing decisions
- Destroying the environment. E.g. provision of US Clean Air Act (requires both domestic and foreign producers to produce cleaner gasoline) ruled illegal—> WTO wants to deregulate firms for environmental treaties
- Favours MEDCs over LEDCs: negotiators from LEDCs not invited to meetings—> agreements announced to them & LEDCs do not have enough qualified staff to take part in negotiations & some LEDCs do not have permanent representatives in WTO—> prevents representation of their interests (—WTO reject criticism—> although it is in favour of free trade, it cannot force LEDCs into trade agreements against their will)
- Causing hardship for poorer nations: theoretically enough food for everyone YET corporate control of food distribution —> 800 million suffering from malnutrition BUT WTO argues that market forces should control agricultural policies (E.g. Free trade allows multinationals to enter LEDCs in Latin American and Africa—> prices for rice, water rise—> locals cannot afford)
- Undermines Local Level Decision-Making and National Sovereignty
- Increasing inequality