POPP2406 Week 8

  • Created by: Elizbooks
  • Created on: 10-05-22 17:21
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  • POPP2406 Week 8
    • Why do we manage the economy?
      • Government and markets = interdependent
      • Government is responsible for the economic performance of the country
      • Government controls how resources will be shared and offers profit-making opportunities for businesses and jobs for employees
      • Business cycles - economic changes of expansion and contraction - firms must be managed to control these cycles and crises
    • Economic management
      • Left wing (Keynesians) suggest that government should increase public spending and use monetary and fiscal policies to help with recessions
        • Keynesians - the government should impose taxes and save money so it can use the money to help with recessions or other economic crises
      • Liberalists - markets will naturally get the economy out of recession and government should not act as the market has  that will naturally remove bad firms
        • Liberals - want reduced spending particularly  during recessions and for the government to share resources effectively
    • Fiscal policy: automatic and discretionary spending
      • Automatic - reduces changes within the economy - e.g. still have resources to provide welfare benefits for poorer people during crises such as recession
      • Discretionary - government spending that provides incentives to help increase consumer demand, productivity and growth
    • Fiscal policy: expansionary and contractionary approaches
      • Expansionary (Keynesian solution for recession)- Government spending is higher than what the gov has
        • increases borrowing, increase tax for the rich class, more government spending, increases government debt
      • Contractionary - reduced government spending, more taxation, decreases government debt
    • Monetary policy
      • How the government maintains the supplication of monetary resources and sets the interest rates
      • Helps to control changes within the economy
      • Since neoliberalism, central bank wants to control inflation rate and prevent economic recession
      • Risk of liquidity trap
      • Keynesians argue that monetary policy only works with high interest rates
        • If it is too low, less people would invest in the bank
    • Exchange rates
      • Floating
        • The higher the demand for a currency, the higher the exchange rate
        • When the demand is fixed, The value of the currency reduces when supply increases
      • Fixed
        • Government tries to set the value
          • If the value is too low, the government will increase the interest rates
    • When there is a weak currency, it is good for exporters but bad for importers like customers buying goods or firms purchasing raw materials
      • When the currency is strong, imports are cheaper for customers and firms but exports are more expensive for people outside the country e.g. international firms


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