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
- Left wing (Keynesians) suggest that government should increase public spending and use monetary and fiscal policies to help with recessions
- 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
- Expansionary (Keynesian solution for recession)- Government spending is higher than what the gov has
- 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
- Government tries to set the value
- Floating
- 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
- Why do we manage the economy?
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