Real World Examples IB ECONOMICS

Ways to increase employment - SA

AS SOUTH Australia's economy continues to struggle, business leaders are urging the government to act in order to provide a much needed jump-start to the state's jobs sector. Organisations urging the government to sell off SA Water in order to avoid a "major economic depression" SA Water contributed $300 million a year to the state's economy but a sell-off would add significantly more value. But SA Treasurer Tom Koutsantonis is not a supporter of the idea and said "unlike the Liberal Party" he would not entertain the idea of selling off SA Water to an interstate or overseas monopoly.

Asian exporters

Asian exporters starting to benefit from US Christmas shopping demand, helped by iPhone. It's never too early to start your Christmas shopping, and Asian nations are starting to benefit. Exports from the region are recovering as demand from the US and other developed economies picks up. Apple Inc's iPhone 6S release in September gave Taiwan's exports a significant boost as its communication products expanded 37.3 percent month-on-month.

GDP

Australia = 1.561 trillion USD (2013)

Progressive Tax Rates

Australia = ~49% for top income earners

Free Trade Agreements

Australia signed a FTA with Korea in April 2014

Economic Growth

Australia's GDP has expanded by 3.1% in the 2nd quarter of 2014 compared to the same quarter in 2013 New Zealand: 0.9% growth in GDP

Australia's Unemployment

Australia's jobless rate remained steady at 6.2 per cent in September, despite a small decrease in the actual number of people employed, according to the Australian Bureau of Statistics. The ABS said on Thursday the decrease of 5100 in the labour force was a result of lower "male full-time and part-time employment and female full-time employment, with the largest decrease in male full-time employment".

Australia's Exports - Wine

Australia's wine exports have grown at their fastest rate since late 2007 as the twin forces of a falling Australian dollar and growing demand from China bring more optimism to the $4 billion wine industry. Export sales to China in the 12 months ended September 30 soared by 47 per cent to $313 million, making it Australia's third-largest export destination by value behind the United States and United Kingdom. The Australian dollar has fallen more than 20 per cent in the past 15 months, and now appeared to be holding around the low US70c mark and this was important. (more certainty) But Australia's exports into that country are still at less than a third of those from France.

Social Welfare

Australia: Centrelink

Expansionary fiscal policy - which govts go against it and implement austerity measures: GREECE

Because the country runs such a large budget deficit, it cannot afford to prioritise on boosting AD because the cost of further increasing their budget deficit is too high. Therefore, they are going against expanisonary fiscal policy (increasing tax, decreasing govt during a time of recession) and it has benefited them : Greece budget deficit 2009: 15% of GDP 2010: 11% of GDP 2011: 8%

Australian Exports - Beef

Beef is being hailed as the new iron ore, as Indonesia and the rapidly expanding Chinese market drive up demand for our cattle. And that demand — coupled with favourable grazing conditions — is turning Top End livestock stations into multi-million dollar businesses. It's even been tipped to be as big as the minerals boom. --- Australians generally consider Brahman beef too tough to eat — as Wooley points out, any attempt to barbecue it turns it as tough as leather in moments. But Asian consumers love it for slow cooking.

Low and Stable Rate of Inflation

Belgium: 2.2%

High Inflation

Brazil: 9%

Positive Consumption Externality

Eg. Vaccinations (NHS subsidised prescriptions)/ Hybrid cars/ Educations

Quota

Eu quota on 20% imported Japanese cars

Expansionary Fiscal Policy

Failure of expansionary fiscal policy in Greece. However, it may not always achieve its intended effect. For example, consider the situation of Greece. Any reduction in tax would probably not lead to increased consumer spending, as people would be more inclined to save than spend in a recession. Investment would also be highly doubtful as it requires business confidence, and Greece simply doesn't have that from it's investors. Also, government spending requires the government to have substantial funds - or it would require borrowing money. This could exacerbate an already worsening situation. Etc.

Limitation of switching to biofuel

Conflict with food (Brazil uses 25% ethanol in gasoline)

What Could Raising Taxes on the 1% Do? Surprising Amounts

"Right now, the wealthy pay too little," Hillary Rodham Clinton said at this week's Democratic debate in Las Vegas, "and the middle class pays too much." Raising their total tax burden to, say, 40 percent would generate about $157 billion in revenue the first year. Increasing it to 45 percent brings in a whopping $276 billion. Even taking account of state and local taxes, the average household in this group would still take home at least $1 million a year. That would more than cover, for example, the estimated $47 billion cost of eliminating undergraduate tuition at all the country's four-year public colleges and universities, as Senator Bernie Sanders has proposed, or Mrs. Clinton's cheaper plan for a debt-free college degree, with money left over to help fund universal prekindergarten. "Most economists today would agree that raising taxes modestly would bring in more revenue"

China's GDP

"The collapse in equity trading activity will also have produced a sizeable drag in financial-sector output growth last month. "But the desire to keep growth close to the annual 'about 7 per cent' target means that growth probably won't be shown to have slowed by much,"

Unemployment/Trade Agreements - Australia's Car Industry

- Australia's 90-year history of assembling and building automobiles is coming to an end. - Now a debate is raging about whether the government should once again stretch its financial assistance - which has already run to billions of dollars in the past two decades - to the broader industry as they struggle for survival in the void left behind. - But the opposition, industry experts and academics argue the funding should run until 2020/21, its original legislated end, and be broadened to give businesses within the automotive supply chain a chance to diversify. - The Andrews' Labor government in Victoria - where about 55 per cent of Australia's automotive workers live - is concerned. - MNC Bosch is looking to close down "The challenge in a multinational is that you are not just competing with your typical external competitors. You're competing for capital investment from a parent who can invest pretty much anywhere in the world. Australia is not at the front of mind for the group when they consider where to make investments." - Government estimates the closures will trigger a net loss of just under 200,000 jobs, with about $29 billion wiped off Australia's gross domestic product - a gauge for the economy's health. BUT - Treasurer Scott Morrison said international trade agreements, including the ones Australia has signed with Korea, Japan and China, as well as the 12 nation Trans-Pacific Partnership would help fuel Australia's next wave of economic prosperity. - A $155 million 'growth fund', which was announced in May 2014, was helping automotive workers find new jobs.

Price floor (Minimum Price)

- India min wage ---- 118 rupees per day Australian min wage - $17.70 per hour Minimum wage laws in Australia = $16.87 an hour Minimum Wage laws in the UK France: domestic carbon price floor

Exchange rates

1.5 dollars - 1 pound 1 AUD= approx 0.7 USD 6.3 Chinese Yuan to the dollar

Nationalisations (making private businesses government owned)

1946- The Bank of England was nationalised.

Stagflation (increase in inflation and increase in unemployment simultaneously)

1973- US oil crisis. The 1973 oil crisis began in October 1973 when the members of the Organization of Arab Petroleum Exporting Countries proclaimed an oil embargo (ban on trade). By the end of the embargo in March 1974, the price of oil had risen from US$3 per barrel to nearly $12 globally; US prices were significantly higher. The embargo caused an oil crisis, or "shock", with many short- and long-term effects on global politics and the global economy. However, this spike in oil prices meant that wages could not keep up, and people lost their jobs as there was very little supply and demand of oil because of the spike in price.

Floating Exchange Rate

1GBP = 1.84AUD (October, 2014)

British steel left weak by China

About half of the 1.6bn tonnes of steel made globally comes from China: firms operating in the UK just cannot compete In the past 18 months, China has flooded the market with cheap, subsidised steel as its economic growth has slowed. Beijing wants to grab whatever foreign cash it can on global markets by selling its products at a knockdown rate. Director of the industry body UK Steel, said: "Chinese steelmakers are fully subsidised by the Chinese government and their regions." Ministers insist they are powerless to hold back the rising tide of Chinese metal, noting that the government is bound by EU rules which prevent the state intervening in such matters. Tata confirmed on Tuesday that it is cutting almost 1,200 jobs as part of a radical shakeup of its long products division, which makes steel for the rail and construction sectors.

Energy Drinks Are Popular, but Not Enough to Replace Soda

America's affection for regular soda, as I reported this month, is waning. It's true that as Americans come to crave more beverage variety, new types of drinks are becoming more popular. Those growing categories include some with a lot of sugar, like energy drinks, sports drinks and ready-to-drink coffee drinks. But sales of those products have not grown enough to compensate for the large declines in soda, a much more popular category. Sales data at the household level also show declines in calories from beverages. Most of the change comes from soda and fruit drinks. It's possible that energy and sports drinks could continue to grow and one day replace all the soda that people stopped drinking. That's part of the reason the big beverage companies are investing so heavily in the new categories. But, for now, those new drink types are small enough that the decline in soda has real meaning for many people's diets. And the industry has an incentive not to oversell its most sugary products: The biggest beverage companies have pledged to reduce overall calories in the products they sell by 20 percent in the next 10 years.

Expansionary FP

America: American Recovery and Reinvestment Act 2009

Asian economies leading to a recession?

As China weakens, recession stalks North Asia. As China undergoes a painful rebalancing of an economy that accounts for 16 percent of global GDP - it has experiences its weakest growth rate since the global financial crisis. Without a doubt, as long as China remains in a very soft spot ... it's natural that North Asia, which is very highly oriented to China's market, whether directly or as a conduit, also takes a knock

Negative Consumption Externality

Cars in London vs Congestion Charge Consumption of alcohols in South Korea (ie. many car accidents leading to deaths, injuries - making loud noises at late night). Smoking

Contractionary Monetary Policy

Chile became the third Andean nation in just over a month to raise interest rates as a slump in local currencies pushed up inflation across the region. The central bank indicated further increases will follow. 2015 - October

Inequity of DOI

Chile: 0.5

Managed Floating Rate

China is implementing dirty float system for the exchange rate. It sets the maximum value to the exchange rate in order to artificially depreciate its currency and therefore export more to the world.

Subsidies

China subsidising solar panel production Australian Government in 2014 subsidised the mining and exploration of coal by energy companies by $4 billion AUD. China: to produce technologically advanced products and undercut foreign manufacturers has quadrupled exports in 16 years South Korean government subsidizing domestic fuel.

Centrally Planned Economy

Communism = Russia up until 1991

Reasons for trade

Different Factor Endowments: China imports minerals, natural resources, metals, and energy resources from Australia. Increased Welfare - specialization and trade allow countries to gain a higher level of consumption than they would do domestically and this leads to increased welfare and higher living standards. Real World Example: Japan is an excellent example of how the trade increased welfare and higher living standards. Economies of Scale - with specialization and production on a larger scale than may be possible domestically, a country may be able to gain more economies of scale. This will lead to lower average costs and benefit consumers through lower prices. Real World Example: China gained the economy of scale. Diversity of Choice - trade enables people to access and approach diverse and variety of goods and services that may not be available only in the domestic market. Real World Example: Korean consumers are able to buy Apple products from US and have wide variety of choice along their own electronics manufacturers Samsung and LG. Increased Competition - Increased competition helps domestic industries to have improvements in productivity and efficiency. In addition, it gives domestic firms better incentive and improve their products to compete against foreign firms. Real World Example: As Apple introduced the iPhone, Korean phone manufacturers such as Samsung and LG began to make their own smart phones to counter the increasing Apple influence on Korean domestic market. Engine for Growth - increased trade helps domestic economies to grow and make improvements in living standards of the people. Real World Example: Korea experienced enormous economic growth as they initiated trade with other countries. As a result, the HDI, which indicates the living standards, increased ranking 12th in the world.

The consequences of weakening the Singapore dollar

Double edge sword, positive effects may occur, but negative consequences loom large. 1. Singapore's exports become cheaper, which can serve to boost demand 2. But Singapore's imports simultaneously become more expensive, which means higher prices for importers. 3. Singapore imports almost everything it uses, raw materials become more expensive. 4. Higher imported inflation else eats into household incomes, which in turn impinges on domestic demand. Ultimately, that adversely affects growth. 5. Because interest rates rise as expectations of a weaker Singapore dollar increase businesses and households take a hit from higher borrowing costs. FURTHERMORE, a weaker Singapore dollar may not provide must boost to exports either, with other countries devaluing their currencies aggressively, Singapore's exports still seem expensive, at least comparatively. THEREFORE, growth should come from more hard-earned ways - Economic restructuring - Technological advancements - Higher productivity

VERs

Following the end of the FMA, EU and US asked China to restrict its textile exports.

VERs (Voluntary export restraint)

Following the end of the FMA, EU and US asked China to restrict its textile exports.

Perfect Competition

Fruit and vegetables Cabbages, Carrots

Indirect Tax

GST, Excise, VAT, Luxury, Customs Duty

Contractionary FP

Germany: Debt Brake 2009

High UE

Greece: 23.40%

Limitation of Carbon Tax

Harms Economic Growth (US and China refuse)

Limitations of Carbon Tax

Harms economic growth (US and China refuse)

Unemployment rate

Hovering around 5-6% in Australia 2016 Hovering around 8% in UK 2011

Aggregate Demand - Westpac

IN a shock move, Westpac today said it was raising its variable mortgage rates next month by 0.2 percentage points to 5.68 per cent.

The consequences of hangovers

In Australia, hangovers are causing 11.5 million "sick days" a year at a cost of $3 billion to the Australian economy, recent research suggests. The American cost estimate includes spending on health care as well as the economic toll of lost productivity, car crashes, crime, and deaths attributable to excessive alcohol consumption.

Expansionary fiscal policy

In Greece, because the country runs such a large budget deficit, it cannot afford to prioritise on boosting AD because the cost of further increasing their budget deficit is too high. Therefore, they are going against expansionary fiscal policy ( therefore increasing tax, decreasing govt spending during a time of recession) and it has benefited them : Greece budget deficit 2009: 15% of GDP 2010: 11% of GDP 2011: 8%

Aggregate Demand - Housing

It seems like only yesterday that the biggest threat to the Australian economy was slowing growth in China, by far our largest trading partner, and the related decline in mining-related investment and commodity prices. However, record low interest rates have fuelled robust demand from first home-buyers and buy-to-let and buy-to-flip investors. This, in turn, has encouraged developers to build new apartments and houses, and consumers to spend on furniture and other household goods and services. The issue is that demand for new and existing housing is slowing This, in turn, may affect many of the businesses that are supposed to be benefiting from record low interest rates. With the commodity boom well and truly over, Australia can ill afford an abrupt end to the housing boom.

Low interest rates

Japan (0% - 2016)

Low Interest Rates

Japan = 0% (example of Zero Interest Rate Policy)

Japan's Economy

Japan's economy was expected to continue recovering moderately even though the slowdown in emerging markets was weighing on exports and output. The BOJ has kept monetary policy steady since expanding its massive stimulus programme in October last year. With inflation having ground to a halt on slumping oil prices, the central bank remains under pressure to ease again ahead of a rate review next week.

Malaysia's Economy

Malaysia's ringgit fell to a one-week low on Monday (Oct 19) ahead of Friday's budget as investors focus on what measures the government will take to shore up the economy amid a collapse in commodities and slowing global growth. "The expectations are a bit high about whether there's a macro policy mix to help support the economy," "There's a need to support the economy and that may have an impact on the budget deficit." THIS COULD BE DUE TO PALM OIL: Malaysia is Asia's only major net oil exporter and is also the world's second-biggest producer of palm oil, which despite recovering some ground from a 2015 low in August is still down 6 per cent from this year's peak in September. The government derives about 22 per cent of its income from energy-related sources.

Low UE

Malaysia: 3.4%

Monopolistic Competition

Mechanics, books, restaurants, food court

Oligopoly (more desirable)

Music companies = Four music companies control 80% of the US market - Universal Music Group, Sony Music Entertainment, Warner Music Group and EMI Group Computer makers (Apple, Microsoft) OPEC Coles and Woolworths Healthcare systems

GDP per Capita

Nepal: $694.10 billion USD

Fixed Exchange Rate

North Korea has a fixed exchange rate. However, the fixed exchange rate does not accurately reflect the market value of the currency as the market value for the currency is often 20 times lower than the fixed value for the currency.

Is the UK marginalised in the EU?

One key issue in the debate about whether the UK should remain in or leave the EU is how far the UK is currently marginalised in Europe. As Nigel Lawson put it in the Times in May 2013: "While never 'at the heart of Europe' ... we are now becoming increasingly marginalised as we are doomed to being consistently outvoted by the eurozone bloc." Overall, using the best available data on EU decision-making, there is strong evidence that on average the UK has not been marginalised in the making of EU laws. The UK government has been closer to final policy outcomes than most other governments. This is also true for policy issues the UK government has been particularly concerned about, although there is some evidence that on certain policy issues, including internal market and trade, the UK has been less content with final EU decisions.

Legal barriers to entry

Ownership to key resources = Alcoa in 1930's, aluminium production

Taxing Negative Externalities

Pigouvian/Fat/Carbon Tax BC - $30 per tonne of CO2 The Carbon Tax implemented by the Gillard Government in Australia in 2012. but later abolished

Few in Venezuela Want Bolívars, but No One Can Spare a Dime

Pity the bolívar, Venezuela's currency, named after its independence hero, Simón Bolívar. Even some thieves do not want it anymore. The eagerness to dump bolívars or avoid them completely shows the extent to which Venezuelans have lost faith in their economy and in the ability of their government to find a way out of the mess. A year ago, $1 bought about 100 bolívars on the black market. These days, it often fetches more than 700 bolívars, a sign of how thoroughly domestic confidence in the economy has crashed. The International Monetary Fund has predicted that inflation in Venezuela will hit 159 percent this year, and that the economy will shrink 10 percent, the worst projected performance in the world. Even as the country's income has shrunk with the collapsing price of oil — Venezuela's only significant export — and the black market for dollars has soared, the government has insisted on keeping the country's principal exchange rate frozen at 6.3 bolívars to the dollar. Mr. Maduro blames an "economic war" waged by his enemies, foreign and domestic, for the problems. But most economists say the problems are caused by the fall in oil prices and the government's policies, including strict controls on prices and foreign exchange for imports. Today, the bolívar is anything but strong.

Persuasion to Limit Negative Externalities

Provide cheap public transport (Queensland recently decreased public transport fares by 5%)

Positive Production Externality

Research and development- developing new technologies that benefit society or can be used by society.

Protectionist Policies

Russia recently raised duties on second-hand car imports to protect their domestic industry

GDP

Russia: $14 611.7 billion USD

R&D in Singapore/Sustainability/Improvements in the standards of living

Singapore's research & development (R&D) efforts have paid off with startups more than doubling in the last decade from 24,000 in 2005 to 55,000 last year. Among other R&D efforts, Mr Lee (PM) added that the Agency for Science, Technology and Research (A*Star) has catalysed more than $1 billion investments. These R&D efforts have also led to improvements in the daily lives of Singaporeans, such as ongoing research projects studying how urban design can reduce urban heat or the Smart Nation programme which will see how technology can be applied in the areas of transportation, healthcare and education. This will enable an integration of all the capabilities needed to support the future of manufacturing efforts. Self-driving vehicles, if developed successfully, could solve commute problems and ease congestion on the roads.

Positive Externality

Singapore: Increased Accessibility to Education

Negative Externality of Consumption

Smoking in Australia around children = second hand smoke = health issues = taxing on government provided health care / driving a car = pollution

Negative Externality

South Africa: Electricity

Monopoly (competitive branding)

Space research (within countries) = NASA in the US Australia post, possibly Bunnings Kellogg cereals (great variety) astro TV

Deflation

Sweden = prices fell by 0.4pc in March 2014

Advertizing/Persuasion to limit Negative Externalities

Switching to public transport, less smoking, changing to greener companies

Monetary Policy - US

THE US Federal Reserve has opted to keep rates on hold at the end of its eagerly awaited September meeting. Low inflation its major concern. "Inflation is anticipated to remain near its recent low level in the near term" central bankers said in a statement. "But the committee expects inflation to rise gradually toward 2 per cent over the medium term as the labour market improves further and the transitory effects of declines in energy and import prices dissipate." "The committee judged it appropriate to wait on further indicators... to bolster its confidence that inflation would rise to 2 per cent over the medium-term.

Privatizations (making government businesses private)

Telstra, Qantas, Commonwealth bank, Public Transport

Negative Production Externality

Thames polluted = Property Rights granted to Thames Water Coase Theorem

Cyclical unemployment

The Great Depression of the 1930's, the unemployment rate surged as high as 25%.

Structural unemployment

The manufacturing industry, for example, has been in significant decline in the United States over the last few decades. The rise of the service economy, and then the information economy, has been filling the vacuum. However, the skills needed in manufacturing are not very similar to the skills needed in a service or information economy, which require a significant amount of education and technological knowledge and skills. Consequently, we see a lot of people losing jobs as manufacturing leaves the United States, and these people don't have the skills to qualify for the jobs that are replacing the manufacturing jobs. This is an example of structural unemployment. The manufacturing industry, for example, has been in significant decline in Australia over the last few years. As Car manufacturers such as Ford, Toyota, Holden and Mitsubishi have stopped manufacturing in Australia, this means that manufacturing skills are less demanded whilst other jobs requiring different skills are more demanded. This means that structural unemployment increases for those previously in manufacturing jobs.

Britain and China's relationship - trade

This friendship is a visionary and strategic choice that fully meets Britain's own long-term interest. The Chinese economy is slowing down and it is changing its nature from an investment-driven growth economy to an economy that has to look to invest in other places," he said. "Chinese businesses are very eager to invest in other countries and some of the best export products that China has to offer are to do with infrastructure, high-speed trains, energy things like that and these are exactly the things that the UK needs. As well as securing billions of pounds of Chinese investment, Britain hopes to advance efforts to turn London into a key trading centre for China's currency, the renminbi, and to boost trade with the world's second largest economy. During a tour of China last month, chancellor George Osborne unveiled plans to make it Britain's second biggest trade partner by 2025. However there are some concerns about China's human rights' issues. Nevertheless, it's a risky policy but it is certainly one that in terms of trade relations could be very beneficial

Why is Australia's CPI low?

Today's inflation numbers were so low, they took the market by surprise. They've also put more pressure on the Reserve Bank to cut interest rates when it meets next week on Melbourne Cup Day. Wages are weak, so most domestic costs are subdued, and there's some pressure coming from the lower exchange rate, so everyone was braced for underlying inflation to be modest.

Price Ceiling (max price)

U.S. 1970 petrol max price Vietnam's price ceiling on milk products, United States' price ceiling on rents. New York price ceiling on rent for housing and apartments.

Current Account Deficit

UK 2011 1.9% - Aiming to be in surplus by 2013 Australia has a current account deficit of $15,535 million AUD

Abuse of Monopoly Power

UK: car firms entering into selective and exclusive distribution networks to keep prices high

Cap & Trade Policy

UN Kyoto Protocol 2000 (150 countries, US didn't ratify)

Tariffs

US raising tarffs on Chinese solar panels

Aggregate Demand - Chinese consumers

WHILE global financial markets are in turmoil as investors continue to fret about China's apparent economic slowdown, consumers in the country are increasingly upbeat. China's faltering industrial profitability and output have caused financial market anxiety. The Chinese economy remains a key source of concern for global investors. Once again though, the surveyed opinions of China's consumers are showing a steady improvement. Urban Chinese consumers seems oblivious to the tirade of negativity that surrounds China at the moment

Australia's CPI and wage growth

Wage growth is higher that CPI (note that CPI is low)

When Gas Becomes Cheaper, Americans Buy More Expensive Gas

When gas prices fall, Americans reliably do two things that don't make much sense. They spend more of the windfall on gasoline than they would if the money came from somewhere else. And they don't just buy more gasoline. They switch from regular gas to high-octane. Americans, in short, have not been behaving like the characters in economics textbooks. There is, however, a pretty good explanation for this kind of pattern. Researchers have found that people treat money as earmarked for particular kinds of spending, a tendency behavioral economists call "mental accounting." If someone is buying rounds at the neighborhood bar, people tend to treat the money they didn't spend as "beer money," and sooner or later they tend to spend it disproportionately on beer. As a result, they end up drinking more beer than they had originally intended. Professors Hastings and Shapiro showed that households adjusted their gas consumption much more sharply in response to changes in gas prices than in response to equivalent changes in overall income. Moreover, this behavior was prevalent: 61 percent of the households made at least one irrational gas purchase. People "treat changes in gasoline prices as equivalent to very large changes in income when deciding which grade of gasoline to purchase," they wrote.

Stagflation

Worldwide: GFC

Inflation

Zimbabwe = annual inflation rose in May 2008 to 1,063,572 per cent