Econ global economy

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Problems with UK links to EU 10
Capital flight, Export links, heavy dependency on financial services. However: Is the financial system stronger now, UK safe haven for finance, YED of UK exports, diversification
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Commodity price volatility problems 6
Cost push inflation, worsening current account PED inelastic, loss of international competitiveness
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Case for change in UK economic policy 5
Economy has been flat, Cambridge and IMF say considerable spare capacity 9%, hysteresis is a problem. However is the increase in government spending on infrastructure or wages
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Case against change in UK economic policy 5
High budget deficit, Crowding out, could lead to higher taxes in the future
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Latvia fiscal and monetary convergence problems 6
Cannot use IR to control growth or inflation because they must be used to control exchange rate. Refer to recession, Cannot use government spending beyond 3% of GDP to increase AD to increase growth. Cannot use ER to control CA
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Is internal devaluation the best 10
Reduced wages, increased international competitiveness, shown in fig 3 as exports rising and growth rising. But it depends upon if PED inelastic and in the short run CA will worsen because of current account. Can wages be kept low.
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Is internal devaluation the best 10(2)
Productivity must rise, is entry into euro worth it, reduced budget deficit for future growth,
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Large output gap dis-inflationary pressure 6
Large number of unused resources, unemployment, wages low, Philips curve tells us there will be little wage inflation which means that cost push inflation will be low. Low C and I because low wages means low demand pull inflation.
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High private sector debt in Latvia causing problems 6
Consumers will not spend therefore C low, therefore AD low, therefore Real GDP low, show on diagram. I low, same effect as C low. Link between C and I low.
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Fig 4.2 and 3 is external devaluation the best. 10
Slow recover by sustained, less austerity future growth good, improve exports and while they have not risen greatly may be good for a recession, improve trade performance. Does marshall lerner hold. Supply side problems with some exports
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Fig 4.2 and 3 is external devaluation the best. 10(2)
Floating ER will correct over a period of time. Fig 4.3 shows imports rising faster than exports
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Card 2

Front

Commodity price volatility problems 6

Back

Cost push inflation, worsening current account PED inelastic, loss of international competitiveness

Card 3

Front

Case for change in UK economic policy 5

Back

Preview of the front of card 3

Card 4

Front

Case against change in UK economic policy 5

Back

Preview of the front of card 4

Card 5

Front

Latvia fiscal and monetary convergence problems 6

Back

Preview of the front of card 5
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