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VERIFIED ECONOMICS OBJ:1-10:CAABCABDBD11-20:ADBAABACDA21-30:BBCDACBDBA31-40:BCAAACADDA
Monopoly is the exclusive possession or control of the supply of or trade in a commodity or service.
i. The expenditures approach says GDP= consumption + investment + government expenditure + exports – imports.
ii.Theincome approach sums the factor incomes to the factors ofproduction.
iii. The output approach is also called the “net product” or “value added” approach.
Multiplier-accelerator model. … This model is based on the Keynesian multiplier, which is a consequence of assuming that consumption intentions depend on the level of economic activity, and the accelerator theory of investment, which assumes that investment intentions depend on the pace of growth in economic activity.
i) Windfall Gains or Losses:
When windfall gains or losses accrue to people their consumption level may change suddenly. For instance, the post-war windfall gains in stock exchanges seem to have raised the consumption spending of rich people in the U.S.A., and to that extent, the consumption function was shifted upward.
ii) Fiscal Policy:
The propensity to consume is also affected by variations in fiscal policy of the government. For instance, imposition of heavy taxes tends to reduce the disposable real income of the community; so its level of consumption may adversely change. Similarly, withdrawal of certain taxes may cause an upward shift of consumption function.
iii) Change in Expectations:
The propensity to consume is also affected by expectations regarding future changes. For instance, an expected war considerably influences consumption by creating fears about future scarcity and rising prices. This leads people to buy more than they immediately need, i.e., to hoard. Thus, the ratio of consumption to current income will rise, which means that the consumption function will be shifted upward.
iv) The Rate of Interest:
In the long run, substantial changes in the market rate of interest may also influence consumption. A significant rise in the rate of interest may induce people to reduce their consumption at each income level, because people will save more in order to take advantage of the high interest rate.
1. Overvalued exchange rate
If the currency is overvalued, imports will be cheaper, and therefore there will be a higher quantity of imports. Exports will become uncompetitive, and therefore there will be a fall in the quantity of exports. Countries in the Eurozone (e.g. Greece, Portugal and Spain) experienced an overvalued exchange rate (and they couldn’t devalue). In 2007, these three countries had a current account deficit equal to 10% of GDP.
2. Economic growth
If there is an increase in national income, people will tend to have more disposable income to consume goods. If domestic producers cannot meet the domestic demand, consumers will have to import goods from abroad. In the UK we have a high marginal propensity to imports (mpm) because we do not have a comparative advantage in the production of manufactured goods. Therefore if there is fast economic growth there tends to be a significant increase in the quantity of imports and a deterioration in the current account.
3. Decline in competitiveness/export sector
In the UK, there has been a decline in the exporting manufacturing sector because it has struggled to compete with developing countries in the far east. This has led to a persistent deficit in the balance of trade.
4. Higher inflation
If UK inflation rises faster than our main competitors then it will make UK exports less competitive and imports more competitive. This will lead to deterioration in the current account. However, inflation may also lead to a depreciation in the currency to offset this decline in competitiveness.
5. Recession in other countries
If the UK’s main trading partners experience negative economic growth, then they will buy less of our exports, worsening the UK current account.
i. Devaluation of exchange rate (make exports cheaper – imports more expensive)
ii.Reduce domestic consumption and spending on imports (e.g. tight fiscal policy/higher taxes)
iii. Supply side policies to improve the competitiveness of domestic industry and exports
6ai)A balance of payments deficit means the country imports more goods, services and capital thsan it exports . It must borrow from other countries to pay for its imports. In the short-term, that fuels the country’s economic growth. It’s like taking out a school loan to pay for education. Your expected higher future salary is worth the investment.
In the long-term, the country becomes a net consumer, not a producer, of the world’s economic output. It will have to go into debt to pay for consumption instead of investing in future growth. If the deficit continues long enough, the country may have to sell off its assets to pay its creditors. These assets include natural resources, land and commodities
6aii)A trade deficit occurs when a country does not produce all it needs. Most nations must borrow from foreign states to pay for the imports.
Therefore, a country with a trade deficit will also have a current account deficit .
A trade deficit also results when domestic companies manufacture in foreign countries. When raw materials are shipped overseas to factories, they count as exports. When the finished goods are shipped back home, they count as imports. That’s true even though they’re made by domestic companies. The imports are subtracted from the country’s gross domestic product . That’s despite the fact the earnings benefit the company’s stock price and the taxes increase the country’s revenue stream.