4.5.4 - ME policies in a global context

different approaches used to solve the same problem (2008 crisis)

UK

keynesian approach of bailing out banks

contractionary monetary + fiscal policy (austerity)

USA

keynesian approach of bailing out banks

expansionary monetary + fiscal policy

ME policies to reduce fiscal deficits + national debts

and their downsides

QE, but inflation bc more money in economy

austerity, but inequality bc less gov spending

ME policies to reduce poverty + inequality

and their downsides

progressive tax, but lack of incentives (potentially)

state provision of services, but waiting lists etc

ME policies to increase international competitiveness

(no downsides bc it’s all seen earlier in the course)

protectionism

currency depreciation

supply side policy

two different views on the effect of the money supply on inflation

KEYNESIAN

inflation is the result of a change in output

MONETARIST

inflation is the result of an increase in the money supply

application on the monetarist view

between 2020 and 2021 the USA increased the money supply by 6.3 trillion

early 2022 there was lots of inflation so monetarists were feeling validated

factors affecting government’s ability to control global companies

how powerful the TNC is compared to the gov

corruption (gives TNC even more power)

infrastructure development (eg. legal system, financial system, media)

what is transfer pricing

when a company produces things in a daughter company with low wages high corp tax, then sells it at a low price (no profit to pay corp tax on) to another daughter company of theirs in a country with high wages low corp tax, so then the g/s can be sold in that country and the company maximises its profit

hard for developing countries to challenge this

3 problems facing policymakers

inaccurate information —> time lag of data on ME objectives

risks + uncertainties —> eg. during brexit lots of different impacts that weren’t necesarily considered (UK firms increased export costs led to them relocating for example)

inability to control external shocks