Macro economic Objectives
Graded Assignment.
Grade 12 HL3
Research the current economic situation in the country allocated to you. What seems to be the biggest problem facing policy makers? What mix of policies do you think would be best suited to dealing with the problems? Evaluate what might be some effects on other economic objectives of enacting policies.
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Word count: 500 words minimum.
Last date submission Sunday, January 11th,2015.
Grade 12 HL3
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1
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Advani Ishaan
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China
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2
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Bhansali Adit
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Indonesia
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3
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Dagliya Dhwani
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Switzerland
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4
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Gupta Madhav
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Japan
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5
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Jhaveri Yash
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Vietnam
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6
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Jindal Ishaan
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Germany
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7
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Kothari Armaan
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Thailand
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8
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Kothary Parshav
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South Africa
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9
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Mahajan Mehak
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Argentina
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10
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Sethi Ishaan
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Canada
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5 comments:
DHWANI DAGLIYA- Switzerland
Switzerland is a modern market economy with low unemployment, a highly skilled labor force, and a per capita GDP among the highest in the world. Switzerland's economy benefits from a highly developed service sector, led by financial services, and a manufacturing industry that specializes in high technology, knowledge-based production. Its economic and political stability, transparent legal system, exceptional infrastructure, efficient capital markets, and low corporate tax rates also make Switzerland one of the world's most competitive economies. The Swiss have brought their economic practices largely into conformity with the EU's to enhance their international competitiveness, but some trade protectionism remains, particularly for its small agricultural sector.
The fate of the Swiss economy is tightly linked to that of its neighbors in the euro zone, which purchases half of all Swiss exports. The global financial crisis of 2008 and resulting economic downturn in 2009 stalled export demand and put Switzerland in a recession. The Swiss National Bank (SNB) during this period effectively implemented a zero-interest rate policy to boost the economy as well as prevent appreciation of the franc, and Switzerland's economy began to recover in 2010. The sovereign debt crises currently unfolding in neighboring euro-zone countries pose a significant risk to Switzerland's financial stability and are driving up demand for the Swiss franc by investors seeking a safe-haven currency.
The franc's strength has made Swiss exports less competitive and weakened the country's growth outlook; GDP growth fell below 2% per year during 2011-13. Switzerland has also come under increasing pressure from individual neighboring countries, the EU, the US, and international institutions to reform its banking secrecy laws. Consequently, the government agreed to conform to OECD regulations on administrative assistance in tax matters, including tax evasion. The government has renegotiated its double taxation agreements with numerous countries, including the US, to incorporate the OECD standard, and is considering the possibility of imposing taxes on bank deposits held by foreigners. These steps will have a lasting impact on Switzerland's long history of bank secrecy.
Increasing geopolitical and environmental strains, as well as severe weather and lack of water resources, were also listed by the Geneva-based forum, which runs the annual conference of policy makers, executives and bankers in Davos, Switzerland. A lack of direction from international leaders to tackle cross-border threats will hinder solutions, the forum said. Stagnating wages will contribute to a “vicious cycle” of inequality through suppressed growth and job prospects, it said. Growing competition between countries and intensifying nationalism suggests the potential for the fragmentation of international politics and a backlash against globalization.
Switzerland’s economy is based on a labour force performing highly skilled work. The main areas include microtechnology, hitech, biotechnology and pharmaceuticals, as well as banking and insurance know-how. The service sector now employs the greatest number of people.
Most of the people working in Switzerland are employed by small and medium-sized enterprises, which play an extremely important role in the Swiss economy.
The Swiss are concerned that economic activity should have as little impact as possible on the environment.
Name: Adit Bhansali
Country: Indonesia
Current Economic Situation:
GDP: Indonesia's economy has gradually slowed over the past two years. By the third quarter of 2013, annual GDP growth had declined to 5.6%, down from 6.5% in 2011.
Reasons:
Fall in prices of key Indonesian exports, such as thermal coal, natural rubber, gold and crude palm oil
There has also been a reduction in investment and consumption
Household spending, which is the main constituent of Indonesia's economy is reducing as consumers are worried about inflation
Currency: The Indonesian Rupiah: On a downward trend for more than two years, the rupiah's exchange value dropped below 12,000 to the US dollar in November 2013, making it the year's worst performer among Asian currencies.
Reasons:
Worsening trade balance
Global investors in Indonesia have begun selling their assets as they are afraid that the Us Federal Reserve will reduce quantitative easing, thus lowering the value of the assets they hold
Effect
The weaker rupiah in turn has led to imported inflation by driving up the domestic cost of imported goods and materials.
Trade: Indonesia's current account balance turned negative in late 2011 and has remained in red territory almost ever since, dragged down by poor exports and, more recently, faltering foreign investment.
Solution: The combination of a weak currency and elevated interest rates should prove a potent mixture to further reduce the current account deficit in 2014, because a weak Rupiah makes imported goods and services less affordable for Indonesian firms and consumers, while higher borrowing costs constrain domestic demand by tightening credit conditions.
Monetary policy: Bank Indonesia raised its benchmark interest rate by a total of 1.75 percentage points between June and November 2013 in an effort to stabilise consumer prices. Further tightening in early 2014 appears quite possible after the rate action so far failed to arrest Rupiah devaluation
Summary: Today, Growth is reducing, even as inflation is increasing. In the second quarter GDP growth slowed to 5.8%, and it will certainly undershoot the government’s target of 6.3% for the year. Inflation, meanwhile, rose to 8.6% in July. Financial markets have taken a battering. After falling by 7.7% over three days, the benchmark stock market index is down by a fifth from its record high in May. The rupiah, a dismal regional performer of late, is at its lowest level against the dollar in four years. Foreigners have sold $1.4 billion of government bonds since June.
Solutions:
Acceleration in investment and firming consumption will lead to moderate growth through 2015 before picking increasing at a faster rate in 2016.
Monetary policy should, as planned, ensure that inflation will remain on a downward trend, by using interest rates.
Indonesia’s infrastructure and social spending needs are substantial and will need to be efficiently financed.
A substantial reduction in energy subsidies, which fail to achieve their social goals and have significant fiscal costs, would free up resources for pressing social and economic needs.
At the same time, well targeted cash transfer schemes will be necessary to keep poverty from worsening and thereby help to overcome resistance to energy price increases.
Subsidised fuel prices to international oil prices that does not have to be renegotiated every year would ease implementation. This will lift headline inflation, but core measures should remain well anchored, and the next move in interest rates should be downwards. The fiscal space created by the fuel subsidy cut should be directed toward lifting spending on infrastructure, education and health care.
There is significant scope to raise revenues by improving the tax system and tax administration. Broadening tax bases and improving compliance, particularly by high income individuals, would make the system fairer.
This should be achieved by removing exemptions and making efforts to bring the self employed into the tax net should be reinforced
Ishaan Sethi
Canada
A place that is known for unfathomable separations and rich regular assets, Canada turned into a regulating toward oneself domain in 1867 while holding binds to the British crown. Financially and innovatively, the country has created in parallel with the US, its neighbor to the south over the world's longest unfortified outskirt. Canada faces the political difficulties of taking care of open requests for quality enhancements in medicinal services, training, social administrations, and financial aggressiveness, and also reacting to the specific concerns of dominatingly francophone Quebec. Canada additionally means to create its assorted vitality assets while keeping up its dedication to the earth.
The worldwide budgetary emergency of 2008 created a significant subsidence, which prompted a noteworthy climb in unemployment in Canada. By October 2009, Canada's national unemployment rate had arrived at 8.6 percent, with common unemployment rates fluctuating from a low of 5.8 percent in Manitoba to a high of 17 percent in Newfoundland and Labrador. Between October 2008 and October 2010, the Canadian work market lost 162,000 full-time employments and an aggregate of 224,000 changeless jobs. Canada's elected obligation was evaluated to aggregate $566.7 billion for the monetary year 2010–11, up from $463.7 billion in 2008–09. Also, Canada's net outside obligation climbed by $41 billion to $194 billion in the first quarter of 2010. However, Canada's directed managing an account part (nearly traditionalist among G8 countries), the central government's pre crisis budgetary surpluses, and its long haul arrangements of bringing down the national obligation, brought about a less extreme retreat contrasted with other G8 nations. As of 2013, most of the Canadian economy has settled, in spite of the fact that the nation stays disturbed by moderate development, affectability to the Eurozone emergency and higher-than-typical unemployment rates. The central government and numerous Canadian businesses have likewise begun to grow exchange with rising Asian markets, trying to differentiate trades; in 2011, Asia was Canada's second-biggest fare market, after the United States. Widely discussed oil pipeline suggestions, specifically, are wanted to build fares of Canadian oil stores to China
As an innovative mechanical society in the trillion-dollar class, Canada looks like the US in its market-arranged financial framework, example of generation, and high living norms. Since World War II, the amazing development of the assembling, mining, and administration parts has changed the country from a to a great extent rustic economy into one basically mechanical and urban. The 1989 US-Canada Free Trade Agreement (FTA) and the 1994 North American Free Trade Agreement (NAFTA) (which incorporates Mexico) touched off an emotional increment in exchange and financial incorporation with the US, its central exchanging accomplice. Provided for its bottomless regular assets, exceedingly gifted work energy, and advanced capital plant, Canada appreciated strong monetary development from 1993 through 2007. Pounded by the worldwide financial emergency, the economy dropped into a sharp retreat in the last months of 2008, and Ottawa posted its first monetary shortage in 2009 following 12 years of surplus. Canada's significant banks, be that as it may, rose up out of the budgetary emergency of 2008-09 among the strongest on the planet, owing to the monetary division's convention of progressive loaning practices and solid promotion. Canada accomplished peripheral development in 2010-13 and arrangements to adjust the financial backing by 2015. What's more, the nation's petroleum segment is quickly growing, in light of the fact that Alberta's oil sands fundamentally supported Canada's demonstrated oil holds. Canada now positions third on the planet in demonstrated oil saves behind Saudi Arabia and Venezuela.
Ishaan Advani
China
China is one of today's modern economies. It is a socialist market economy that follows the principles of a state owned sector. It also has an open-market economy. It has a nominal GDP of $ 9,181,204 (In millions), the second highest in the world and a purchasing power parity of $ 16,149.1 (In billions), the third highest in the world. The dollar values of China's agricultural and industrial output each exceed those of the US; China is second to the US in the value of services it produces. Still, per capita income is below the world average.
The Chinese government faces numerous economic challenges, including:
• Fall in consumer spending
• Income inequality
Consumer spending can be defined as personal consumption expenditure. It is the largest part of aggregate demand or effective demand at the macroeconomic level. In China a fall in consumer spending could lead to a possible fall in aggregate demand of the country. This could lead to disinflation (Fall in the rate of inflation) and ultimately deflation (Fall in the general price level of goods and services).
The fact that majority of investments made in China is dependent on the government could plunge the country into debt in the years to come. In order to improve China from an economic angle the government should introduce policies that lead to an income equality in China. Fiscal decentralization means decentralizing revenue raising and/or expenditure of money to a lower level of government/organization. Fiscal decentralization will encourage consumption expenditure to increase for the reason that the countries dependence on government investment will decrease. Furthermore, it will also lead to an increase in the aggregate demand of the country that would lead to inflation (An increase in the general price levels of a country). A moderate rate of inflation makes it easier to adjust relative wages and makes it easier to adjust relative prices.
However, this has its disadvantages. Their local revenues are sometimes barely sufficient to cover the salaries of civil servants on the public payroll. Consequently, they are more likely to levy heavy taxes on existing enterprises, worsening the business investment environment. On the other hand an excessive increase in aggregate demand along with an excessive increase in inflation could lead to problems such as redistribution effects. This would affect people with fixed wages and lead to an increase in income disparity, an existing problem in China.
China has extremes of poverty and wealth in the country that has contributed to insufficient domestic demand. This in turn has led to a fall in GDP per capita from 9.9 in 2010 to 7.2 in 2011. Income inequality arises when ownership of factors of production is unequal, and when the prices of factors of production vary. Income differences can be reduced via redistribution. Taxes are one such method of redistribution.
Transfer payments can be seen as a method of dealing with income inequality. Transfer payments are “payments made by the government to individuals specifically for the purpose of redistributing income away from certain groups and towards other groups.” Because of transfer payments the availability of money to Chinese citizens will increase. This will not only increase their standard of living but also will give them the ability to make investments in Chinese firms and facilitate economic growth.
However, transfer payments made to extremely poor Chinese citizens may prove to be disadvantageous. There is no guarantee that extremely poor people may use these funds for economically beneficial purposes. They may use these funds to support black market organizations and other illicit enterprises. Hence, money will be lost from the circular flow of income as a leakage and there will be a fall in investments made in organizations as well as a fall in aggregate demand because of a lower amount of spending.
Ishaan Jindal - Germany
In the face of the global financial crisis, the German economy has proved remarkably resilient, outperforming other large, high-income European economies. Unemployment has reached post-unification lows even as job losses mount across Europe, given ambitious and timely labour market reforms and other policy reforms. Concerted efforts will be needed, however, to ensure continued, sustainable, broad-based improvements in living standards, particularly in light of emerging demographic, social and environmental challenges. Germany must continue to lead the way on reforms, laying the foundations for stronger and more sustainable growth across Europe.
The German economy has performed exceedingly well given the context. GDP per capita has risen above the pre-crisis level and has converged to that of the best-performing OECD countries. Unemployment is lower now than before the crisis, having fallen from 11.3% in 2005 to 5.3% in July 2013, well below the OECD average of 8%. Falling unemployment helped eliminate government deficits by reducing social spending needs and raising tax revenues. This improvement in public finance was supported by the introduction of a “debt brake” rule adopted in 2009. This has in turn helped maintain financial market confidence.
Germany’s dynamic export engine has underpinned its high living standards. In recent years, German manufacturing exporters have continued to gain market shares while expanding into new markets. Improved price competitiveness, innovation in sectors with long-standing comparative advantage and specialisation in the production of those investment goods demanded by fast-growing emerging economies have all played important roles. The good performance of the manufacturing sector has helped Germany attain a relatively high rate of labour productivity growth, 1.1% annually between 2000 and 2012. This growth rate is similar to that of other countries with high productivity levels, such as Denmark (1.3%) or the Netherlands (0.9%), but below that of the United States (1.5%).
The success of the export-oriented manufacturing sector has relied on major improvements in productivity and substantial cost containment. On the other hand, the services sector has lagged behind, with rates of growth of productivity and value added below those of comparable European economies.
Despite significant reductions in greenhouse gas (GHG) emissions over the past two decades, with GDP growth having become decoupled from CO2 emissions, Germany remains one of the largest GHG emitters in the OECD, partly due to an emission-intensive energy mix and its large manufacturing sector. Germany has set ambitious targets for further GHG abatement that go beyond the EU requirements for climate change mitigation. Achieving these objectives will require equally ambitious policy efforts and can also underpin economic growth, notably by reducing the vulnerability of the economy to energy price volatility and by fostering innovation. Better carbon pricing and an improved regulatory environment can play important roles in this respect.
The economy’s potential growth rate is set to weaken considerably by 2035 as a result of population ageing, which is setting in earlier than in other OECD economies (Figure 3). If current population patterns persist, the proportion of Germans aged over 65 will rise from 20.6% in 2011 to 32.3% in 2050, while the working age population will contract by 14.8 million (28%). Since an increasing share of the population will be inactive, growth in GDP per capita will slow down. It is therefore necessary to introduce measures that help dampen the impact of demographic change on per capita income and living standards while ensuring the sustainability of public social expenditures. This requires changes in a broad range of policy areas, to boost both productivity and labour participation.
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