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Real World Examples_ IB Economics

The document provides various real-life examples of microeconomic and macroeconomic concepts, including government interventions, market failures, and economic policies across different countries and years. It highlights the effects of policies such as price ceilings, subsidies, and taxes on markets, as well as the implications of inflation, deflation, and unemployment. The examples illustrate the complexities of economic decision-making and the consequences of government actions on society and the economy.
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0% found this document useful (0 votes)
12 views14 pages

Real World Examples_ IB Economics

The document provides various real-life examples of microeconomic and macroeconomic concepts, including government interventions, market failures, and economic policies across different countries and years. It highlights the effects of policies such as price ceilings, subsidies, and taxes on markets, as well as the implications of inflation, deflation, and unemployment. The examples illustrate the complexities of economic decision-making and the consequences of government actions on society and the economy.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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IB Economics Real life examples

Concept Example
MICROECONOMICS

PPC PPC shifted left


Outbreak of coronavirus in 2020, change in factors of production: decrease in labour,
education, skills → decreasing output of the economy

Government Situation -
intervention (indirect UK (April 2018), The Soft Drinks Industry Levy, charged at different rates according to the
tax) total sugar content, with companies having to pay 18p per litre of drink if the product contains
more than 5 grams of sugar per 100 millilitres, and 24p per litre if it contains more than 8
UK grams per 100 millilitres. Pure fruit juices and drinks with a high milk content are exempt.
2018 Dr
Criticism - When originally announced, it was thought that revenue from the levy would be in
the region of £520 million, which was intended to be used to encourage children to participate
in sport. However, on the day the levy came into effect, this estimate had been reduced to
£240 million. Some firms had taken action before the introduction of the levy, by cutting the
sugar content from the drinks.

Consequences: Lower government revenue, increased opportunity cost, positive production


externality, better health of population

Government China 2022, suffered from energy bottlenecks, suffered from power cuts due to electricity
intervention (subsidy) shortages, slowed economic growth, THUS to stimulate production Chinese govt
implemented heavy subsidies ($546b) - investment in energy projects, and especially
CHINA renewable energy (wind & solar energy, electric vehicles)
2022
Consequences - govt faced significant opportunity cost, budget deficits ($500bn), national
debt rose to 80% of GDP, positive production externality

Government Singapore government, directly provides national defence and street lighting
intervention (direct Financed through taxation
provision) HOWEVER, due to free-rider problem and non-excludable and non-rivalrous nature of public
goods, state-owned enterprises providing these goods may be productively inefficient,
compared to private firms

Government In September 2018, in Venezuela, in the food industry, due to hyperinflation, government set
intervention (price strict regulations for over 20 products (milk, sugar, coffee), preventing prices for basic food
ceiling - max price) commodities from skyrocketing so the general population can still afford it, price ceiling at
$0.30 from $0.50
VENEZUELA Criticism: producers and distributors could not cover costs, produced shortages (5% →
2018 82.6%), led to malnutrition, generating rationing problems, can create black markets,
allocative inefficiency, and generates welfare loss
Government Between 2021-2022, in Australia, in the labour market, there was a rise in costs of living,
intervention (price increasing inflation eroding workers wages, govt imposed 5.5% increase in minimum wage,
floor - min price) helped those with lower fixed incomes, higher costs of production, govt intervened by raising
the price floor, increased revenue received by firms, offset the increased costs of production
AUSTRALIA due to higher wages, reduced layoffs, raised standards of living
2021-2022
Criticism: may cause minimum wage to go backwards in the future, may result in real wage
reductions for award-reliant workers

Market failure In 2018, in Macau, a bridge of 55 km was built to connect Hong Kong and Macau together.
(positive production This created a large number of jobs and reduced transportation costs to get from HK to
externalities) Macau.
MSC<MPC because the producers have to pay for the cost of the production rather than the
MACAU society
2018 This results in a lower quantity produced at higher price leading to an under-allocation of
resources, smaller amount produced (Qm) than the socially optimal output (Qopt)
Inefficient allocation of resources from the society’s POV (underallocation) and the potential
welfare gain is the max amount of welfare society could have gained if resources were
allocated efficiently
Solutions: government can grant subsidies to make sure MPC = MPS again, government can
directly provide the good
Evaluation: strain on government budget, leads to national debt, opportunity costs arise

Market failure In 2010, in Ireland, pollution posed significant costs on society


(negative production
externalities) Solution: Ireland enacted carbon tax in 2010, covering all fossil fuels used in homes, offices,
vehicles and firms, based on each fuel’s CO2 emissions (carbon tax per unit of CO2 emitted),
IRELAND in 2010 1 tonne CO2 = EUR 15, in 2020 1 tonne CO2 = EUR 26 ; by 2030 impose tax - 1
2010 tonne CO2 = EUR 100 with expectation that CO2 emissions fall by 30%, because provides
incentive for low-carbon consumption, investment and innovation, does not directly impose
burden on households and firms recovering from Covid-19

Consequences: government received tax revenue, mitigate impact of higher taxes on


vulnerable households and communities → increases social acceptability, spent on financial
support for retraining workers and business jobs that generate sustainable jobs in regions
being affected by the phase out of peat extraction and use
Government also spent revenue on social welfare schemes in 2021, benefits for children and
those living alone, increased average household disposable income, reduced poverty

Market failure In 2022, in Singapore, in the healthcare industry, the government provided subsidies, with
(positive consumption higher subsidies for the lower income group (50-70%). This provides financial support as
externalities) medical costs are increasing since the Covid-19 pandemic
In SG, the Covid-19 vaccines were free, preventing the spread of Covid-19
Criticism: increases government expenditure and opportunity cost
The MSB>MPB as the demand for goods or services does not take into consideration the
positive external effects it has on a society as a whole, but only the benefits to the private
individual
A smaller amount of the good is consumed than the socially optimal output, and is under
allocated form the society’s POV
Solutions: government subsidy, legislation (by making the good compulsory like vaccines in
SG), positive advertising

Under-consumption of merit good (education) due to high income inequality


Financial assistance for low-income families, families with low incomes not exceeding the
gross households income (GHI) which is $2500 per month, are eligible to sign their children
up for the Financial Assistance Scheme (FAS) - under FAS, children enjoy subsidised school
and transport fees, free textbooks, school attire - increases affordability of education in SG,
effectively tackling the under-consumption of pre-tertiary education in SG that is caused by
high income inequality

Market failure In 2016, in UK, soft drinks were a major contributor to the high sugar intakes of children,
(negative consumption particularly teenagers - also contribute to country’s obesity crisis
externalities)
Solution: 20% tax on sugary drinks (tax per unit of sugar content), increased costs of
UK production, lower supply (S1=MPC → S2=MPC+sugar tax), higher price (7.5p → 33.6p per
2016 litre) ––– lower demand, lower sugar consumption (reduced by 35%), MSB<MPB, MPB
shifts inwards closer to MSB

Lack of public goods Europe, April 2023


+ Solution Defence spending
Free rider problem

Common pool
resource + Solution In Australia in 2014
Problem: Tourism, rising demand for coral, pollutants from boats and nearby hotels/resorts
AUSTRALIA, 2014 caused a great deal of damage to coral reef habitats. This is threatening the sustainability of
the Great Barrier Reef.
Rivalrous, Solution: Educating tourist on the ecological importance of the coral reef and managing
non-excludable recreational activity (e.g restricting access, strict licensing)

Price elasticity of Price elasticity of demand for Wine


demand (elastic + A recent study by the Institute for Fiscal Studies for the UK found that the PED for wine was
inelastic) -1.69. This means that demand for wine is relatively elastic. If the price of wine were to
Syllabus: importance increase by 10 % (ceteris paribus), there would be a fall of 16.9% in the quantity of wine
of PED for firms and demanded.
government DM
Market for Oil (2016)
Problem: The oversupply of oil resulted in plunging oil prices to as low as $27.67 per barrel.
Solution: Oil producers to cut down on production

Price elasticity of
supply (elastic +
inelastic)

Income elasticity of
demand (elastic +
inelastic) - normal
goods, inferior goods
and necessities

Cross elasticity of
demand (elastic +
inelastic) - substitutes,
complements

MACROECONOMIC
S

Inflation Demand-pull: USA 2021


Problem: large monetary and fiscal stimulus as well as easing of movement restrictions led to
inflation rate of 6.6%
Mostly due to bottlenecks in production as supply faced difficulty in catching up to the rising
AD

Cost-push: ANGOLA 2016


Problem: as of July 2016, year on year inflation rate is 35%
Cause: depreciation of national currency - led to increase in price of imports - led to further
increase in APL in Angola as most commodities are imported - machinery, vehicles, spare
parts, food, textiles, military goods
Solution: Contractionary monetary policy
Increase in interest rate - leads to more saving and less spending - includes spending on
imported goods - appreciation in local currency - further reduced import prices

Deflation LEBANON 2015


Problem: deflation rate was -3.7%
Cause: currency is pegged to the $ - as $ appreciated, Lebanese currency also appreciated -
exports less competitive, imports less expensive - weak domestic demand also led to reduced
AD
Solution: cannot use Monetary policy - since MP is used to maintain exchange rate with USD
- cannot use expansionary fiscal policy due to high government debt - possible to implement
Quantitative easing (central bank purchases assets such as government bonds to increase
money supply and lower interest rates)

Stagflation Slow economic growth, high unemployment, rising prices occur simultaneously

Economic growth Reasons for low economic growth: JAPAN 2015-2016


Problem: economic growth in 2015 was 0.5% - growth was stagnant in first 2 quarters of 2016
Cause: Falling exports + weak corporate investment (firms)
Solution: government passed stimulus package - increased spending on infrastructure
Central bank implemented expansionary monetary policy - fall in interest rate - either
increased saving in other countries where higher interest rates offered → depreciation of local
currency (Japan) → exports cheaper → boosts exports → increase in production → higher eco
growth
or increased spending on domestically produced G&S + lower demand for imports from
overseas → increase in C component of AD → increases AD → increase in production in
response →

High employment - Structural: AUSTRALIA 2014


structural, cyclical, Unemployment rate was at 28% in 2014
frictional, seasonal
Cause: demand for manufacturing industries going down + demand for services sector is
increasing
Hence, fall in demand for skills employed in the manufacturing sector - leads to skills
mismatch

Solution: Australian govt invested $1.4b into Trade Training Centres


Helped students successfully move to further education, training or work

Cyclical: FRANCE 2016


Unemployment rate 9.9% in July 2016

Cause: slowdown of euro-zone economy following 2008 financial crisis


Business investment weak → fall in AD → stagnant labour market growth

Solutions:
Subsidise job creation - France govt paid €2000 for companies that hire and retain full-time
employees for more than 6 months

Reduce unemployment benefits to encourage people to find work + provide these people with
vocational training

Tax reductions - less tax on profit would encourage private investors to invest in the economy
- increased investment (increases I component of AD) ultimately stimulates economic activity
and leads to employment

Equal income UK 2015-2016


distribution - equal Estimated that for households in bottom quintile of income distribution, indirect taxes
and unequal accounted for 27% of disposable income - compared with 14% in top quintile
Largest share of indirect tax was VAT - accounted for 11.4% of disposable income in bottom
quintile, compared with 7.1% for top quintile

Solution 2018: national minimum wage implemented in UK at £7.38 for those aged 21-24
Subsequently increased to £7.70 in 2019 for ages 21-24
Policy was implemented to raise income of poorest households and reduce income inequality

Favourable balance of payments - deficit and surplus????? No example?

Expansionary fiscal USA 1933


policy Problem: stock market crash in NY in 1929 resulted in contraction of world trade and rise in
cyclical unemployment

Solution: President Roosevelt launched “New Deal” in 1933 - substantial fiscal expansion
programme - designed to improve country’s infrastructure and bring people into employment
Govt expenditure on infra and other sectors with potential for growth - unemp fell in short run
from 25%
BUT, since increased govt exp was funded by increased rates of tax, fall in rate of unemp did
not sustain and by 1938, still relatively high unemployment rate 19% (partial correction)

HOWEVER, increased government expenditure on infrastructure in the LR did manage to


bring unemployment down in 1942 to 4.7% (complete correction, reached Yfe)
Govt ran a budget deficit, lower tax + higher govt spending
Lower income tax - higher disposable incomes for households
Lower corporate tax - promoted greater investment by firms
Higher govt exp - also promoted greater investment by firms
ALSO created jobs, lowered unemployment (cyclical)

Abenomics: 2012-2018
PM Shinzo Abe
Problem: economic slowdown, unemployment 4.3%
Goals: stimulate economic growth, end deflation (AD curve shifts outwards, from Ye to Yfe)

Govt expenditure: $116 billion - education+infra (bridges, tunnels and earthquake-resistant


roads): $17.6 billion
Infra expenditure - employment opportunities → lower cyclical unemp
DONT mention education expenditure - overlaps with SSP - bring it in later as part of joint
program introduced by govt (SSP + fiscal)
Lower unemp → higher AD → further lower unemp as firms need to increase production of
G&S to fulfill demand
Corporate tax cuts: 36% → 30% - encouraged private sector investments to increase
Ultimately, 2.4% unemployment!!

Alt: Interventionist SSP


Abe invested in infrastructure projects in the energy sector (shifted SRAS outwards,
eventually shifted LRAS outwards from Yp to Yp1)
Lowered NRU - structural + frictional + seasonal
Structural - Education
Frictional - lack of info, when provided by govt, lowers frictional

HOWEVER, significant time lag - even after 4 years, 2017, Japan had only begun to
experience moderate growth, while deflation was still persistent under the target level

Contractionary fiscal USA 1993


policy Problem: there was federal budget deficit of $290b
Solution: Bill Clinton raised top marginal tax rate from 28% → 36% for those earning more
than $115000 AND 40% for income above $250000 (fall in C component of AD)
He also raised corporate tax rates and ended some corporate subsidies (fall in I component of
AD)
Also reduced military spending (fall in G component of AD)

Expansionary UK 2015-2016
monetary policy Problem: inflation fell below inflation target, even turning negative in some months - partially
due to weakening prospects of growth following the EU referendum result
Solution: in AUGUST 2016, Monetary Policy Committee agreed to cut bank rate to 0.25% to
bring inflation back towards the target - caused increase in private sector spending due to
increased borrowing, less saving - increased AD - resulted in inflation moving back into target
range

Contractionary ANGOLA 2016


monetary policy Problem: Stagflation due to depreciation of currency
Solution: central bank raise interest rates - discouraged consumption and encouraged saving
(reduced C component of AD)
Also led to appreciation in currency - resulted in lower import prices - helped reduce
inflationary pressure from supply side also due to lower costs of production

Market-based ● Incentive based policies


supply-side policy SINGAPORE 1994
SG government introduced GST of 3% to reduce government’s reliance on income taxes
Allowed govt to reduce income taxes which incentivized more individuals to enter workforce
Increased productive capacity

To allay worries over higher living costs - govt rolled out measures to offset impact of GST
such as higher grants for lower-income households and higher subsidies for public services
like education and healthcare

Reaganomics (USA) - Ronald Reagan - 1980s


Large tax cuts:
Income tax cuts of the wealthy population 70% → 50% - lowered tax burden on wealthy -
encouraged spending instead of increasing work-hours - stimulated economic growth - BUT
eventually led to inflation - AND increased income inequality - ALSO substantial budget
deficit due to lower tax revenue - THUS lower government expenditure to improve problems
like poverty and unemployment (addresses economic growth, NOT economic development)

Corporate tax cut 28% → 20% - increased investment - increased quantity and quality of
production of goods & services - increase in AS + increase in quality of life (addresses BOTH
economic growth and development)

Feb 2012, Greece implemented 22% cut in minimum wage, lowered labour costs, increased
SRAS of Greece economy, reduced layoffs, and increased employment level, resulting in
better standards of living and quality of life (addresses BOTH economic growth and
development)

● Policies to encourage competition


Deregulation - Thatchernomics (UK) - Margaret Thatcher - 1979-1990 - deregulated major
industries like telecommunication, gas and airlines - stimulated competition and increased
efficiency - led to expansion of those industries - increased AS - economics growth achieved -
BUT increased environmental pollution - ALSO lower quality of goods & services produced -
lowered standards of living (addresses economic growth, NOT economic development)

Trade liberalisation (SG) - Retail Electricity Market - Energy Market Authority (EMA) has
progressively opened the retail electricity market to competition. Since 2001, steadily more
consumers have been given freedom to switch from buying electricity at the regulated tariff
from SP Services to buying from an electricity retailer which offers packages with different
price plans → THUS, number of electricity retailers has surged from 2013-2017 (7 → 25) →
increasingly, consumers are introduced to a wider variety of options – Incumbent firms are
also opting to produce more green electricity, which incurs lower costs of production in the
long run – rates for consumption have also decreased, allowing consumers to enjoy cheaper
prices – Firms are now more incentivized to innovate as well, given the rising level of
competition (addresses economic growth AND economic development)

● Privatisation CHINA 1998-2007

The number of SOEs decreased by more than half from 238000 in 1998 to 116000 in 2007
Largest, centrally administered enterprises were kept under state control, but most local SOEs
were sold to private hands
Led to increased in productivity as privatisation has led to increased competition and
innovation

● Labour market reforms


Germany - 2002 - Hartz Committee - response to sluggish growth + unemployment (10%) +
shrinking working age population - reduced duration of unemployment benefits + ended
options for early retirement to provide incentives to unemployed people to look for a job -
cutting red tape measures encouraged labour force participation, especially of women and
older people - led to economic growth - BUT led to increase in poverty from 12.5%-14.7%
because unemployed were accepting part-time jobs, which did not allow them to rise above
the poverty line - THUS even lower standards of living (addresses economic growth, NOT
economic development)

Interventionist SINGAPORE 2015


supply-side policy Problem: SG was experiencing increase in structural unemployment due to increased
automation (technology substitution) - led to skills mismatch between workers and firms
Solution: govt subsidized retraining and skill upgrading for workers to acquire skills that firms
demanded - education program “SkillsFuture” - over 500,000 individuals, across all ages,
consisting of over 14,000 enterprises, aimed at lowering unemployment in SG

AD/AS + LRAS shifting right + Yp→Yp1 + APL→APL1

Improved quantity and quality of SG’s labour force - fall in structural unemployment -
improved quality of human capital - led to improvements in productive capacity

Total capacity of economy shifts outwards Yp→Yp1, increases rGDP, economic growth

Increases likelihood of SGs obtaining job in future - more knowledgeable, have useful skills -
structural unemployment

Equity Transfer payment


Subsidies for edu + healthcare
INTERNATIONAL Marshall plan - research
ECONOMICS

Protectionism (tariffs) NON AGRICULTURAL SECTOR EG


CANADA 2017 (increase in tariffs)
Imposed tariff on USA drywall imports - pre-made wall section that is used in construction
industry for building houses
Tariffs were variable and were dependent on the extent to which prices fell below the
minimum price determined by commissions
Reports have shown that USA firms have been dumping drywall into Canada - led to many
Canadian firms shutting down - led to further job losses
Tariff has pushed up cost of building new home by thousands of CAD
Estimated that the immediate share increase in variable costs (following imposition of
preliminary tariff) resulted in an extra CAD 3000-5000 on the cost of building some homes

USA 2021 (increase in tariffs)


USA president Joe Biden has renewed tariffs on Chinese solar panels for 4 years
Opponents of the tariff have argued that slapping tariffs on imported solar panels undermines
Biden’s goal of making the US power grid Carbon free by 2035
Further argue that installation industry is larger than manufacturing industry and that higher
solar panel costs would cause job losses in the solar panel industry
Biden’s administration argued that the tariffs would help US manufacturers and help build a
North American solar supply chain
Former president Donald Trump has imposed emergency ‘safeguard’ import tariffs of 30% on
solar products in 2018 to protect American jobs

AGRICULTURAL SECTOR EG
INDIA 2022 (reduction in tariffs)
India dropped tariffs on lentils
2017 - 33%, dropped to 2020 - 11%
Prior to introduction of tariff, India was world’s largest customer for lentils and trade was
valued at ~$1 billion
Australian farmers recorded a good grain harvest in 2022, and it is expected that many
farmers would have lentils ready to trade to India
Tariff elimination was praised by Aus govt
Improved competitiveness of Indian firms → increased efficiency → increased output and
quality (shifting rGDP from Ye to Yp and living standards improved), led to economic growth
→ lower cyclical unemployment 3.2% as more labour was needed to support increased levels
of output → higher incomes, lower prices together led to increased affordability and access to
basic needs → poverty fell to 10.2%

HOWEVER, due to greater purchase of imports, India faced significant depreciation in


currency of 10% → led to increased costs of production of Indian firms using imported G&S
as factor inputs → eventually by end of year in Dec 2022, India experienced high levels of
cost-push inflation of 5.72% and lower standards of living

Protectionism (quotas) PHILIPPINES 2017 - REMOVAL OF QUOTA


As per agreement with WTO, Philippines will eliminate current quota system for rice imports
in June 2017
This will make rice market more competitive and could reduce price of rice by up to 7 pesos
per kg
The lower price of rice could save Filipino households as much as 2362 pesos per year
HOWEVER, local rice farmers fear that they may not be able to compete with Vietnamese
rice
To help Filipino farmers adjust to competition, the govt has provided subsidies to encourage
shift to automation - increasing physical capital - increased efficiency and productivity of rice
production - increased revenues
Further, govt has decided to offer training to rice farmers

CHINA 2020 - IMPOSITION OF QUOTA


Following escalation of political tensions between Australia and China, Chinese govt imposed
punitive trade barriers on Australia
Quota of 36000 tons imposed on Aus wool
This policy was expected to have severe impact on Australian wool producers
Prior to quota, Australia was a large supplier of Wool for China

Protectionism
(subsidies)

Exchange rate Appreciation


(floating) THAILAND 2021 - Baht
Reasons: increase in capital inflow, country’s current account surplus due to increased tourism
- fell below 30 Baht per dollar

Inflation: lower price of imports that are factor inputs, fall in costs of production, increase in
supply of goods and services, fall in market price of good or service, fall in (cost-push)
inflation → BUT depends on PED of good or service (inflation 2020→2021: 2.08%→1.23%)

Economic growth: due to fall in quantity of exports, fall in economic growth, BUT ALSO,
due to fall in COP (lower price of import factor inputs with elastic PED), leads to increased
incentive to increase output, increases rGDP → economic growth (1.6%)

Unemployment: exports more expensive, lower overseas demand (assuming elastic PED),
lower quantity exports produced, fall in demand for labour (human capital), BUT ALSO, fall
in COP and increased incentive to increase output in domestic firms, leads to increase in
demand for labour to take advantage of low COP and earn higher revenues - 0.99% (fall from
2020)

Current account balance: exports more expensive, imports cheaper, quantity of exports >
imports, leads to current account deficit - 1.7% of rGDP

Living standards: increased affordability of goods and services (domestic due to fall in COP
and imports due to lower prices), increased standards of living

Solution: Bank of Thailand (central bank) relaxed regulations regarding investment in foreign
securities, led to increase in supply of Baht because domestic consumers sold Baht in
exchange for foreign currencies, led to fall in value of Baht → depreciation

Depreciation
INDIA 2011 - Rupee
Value of INR fell by 20% from Jan 2011 - Jan 2012
Created inflationary pressure due to rising cost of raw materials
Forced central bank to increase interest rates
Corrected large pre-existing current account deficit of India
HOWEVER, many Indian exporters rely on imported raw materials → increased COP, led to
cost-push inflation of 9%

Exchange rate (fixed) SOUTH KOREA 2014


The KR exchange rate authorities have been intervening in the foreign exchange market to
keep value of Won low against USD
Purpose - increase price of imports, thereby reducing reliance on imports
Exports also have been growing slowly and low value would help boost exports
HOWEVER, this has led to growing tensions between KR and USA
IMF has warned KR against excessive intervention

GULF STATES 2013


Saudi Arabia and UAE have pegged currencies against the $ for decades
Currently, Qatar exchange rate is QAR3.64 / US$1
Some Gulf states are considering moving from a fixed exchange rate to a floating
Reason - a higher degree of price flexibility may lead to more flexibility in trade and
policy-making
HOWEVER, some economists have pointed out that the current fixed system gives stability
and visibility for business contracts
To maintain fixed ex rate, UAE had to cut interest rates, causing inflation
Qatar is battling against its higher inflation rate since 2009 - 3.1%

Economic integration ● PTA


(preferential trade EU-Singapore FTA
agreement, common
market, monetary
union) Australia and Japan 2018
In 2018, Australia signed the CPTPP - this agreement creates the third largest FTA in the
world
Two main members are Australia and Japan
Japan will proceed to eliminate tariffs on Australian beef and cheese, and increase Australian
rice quota from 4400 to 8400 tons
Many Japanese industries will benefit, and the overall benefit to Japan’s economy could
exceed USD70b
HOWEVER, Japanese farmers are worried about increased imports
Some parliament members have expressed concern about Japan’s over-reliance on Australian
imports
The agreement will bring more than USD37b to Australia’s agriculture sector, helping
Australia reduce its current account deficit with Japan

Jan 2023, Croatia was the 20th member of the Eurozone; Euro currency is seen to be stronger
and more stable than Croatian currency, THUS will allow it to better withstand imported
inflation, and by being integrated with the Euro-bloc, it is expected to allow it to better
withstand looming economic uncertainties; Can also boost trade especially since its main
trading partners are Eurozone economies anyway; Currency conversion costs can now be
eliminated.
● COMMON MARKET
an agreement between two or more countries removing all trade barriers between themselves,
establishing common tariff and non-tariff barriers for importers, and also allowing for the free
movement of labour, capital and services between themselves

SOUTH SUDAN AND THE EAST AFRICAN COMMUNITY (EAC) 2016


South Sudan joined the EAC in 2016
Other 5 members: Burundi, Kenya, Rwanda, Tanzania, Uganda
According to 2017 report, relationship between EAC members has been more peaceful as a
result of increased integration
South Sudan is dependent on oil EXPORTS
South Sudan can develop a comparative advantage in rice production (produce rice with lower
opportunity cost)
HOWEVER, low level of education and skills may present barrier for South Sudan to attract
FDI

● CUSTOMS UNION
South African Customs Union (1910)
SACU is an African regional economic integration
World’s oldest customs unions, founded in 1910
Members: Botswana, Lesotho, Namibia, South African, Swaziland
Members maintain common external tariff, share customs revenue and coordinate policies and
decision-making on a wide range of trade issues

● MONETARY UNION
Latvia and Eurozone 2014
In 2014, Latvia became 18th country to join Eurozone
Many Latvians were reluctant to let go of national currency due to worries around instability
that could initially be caused by a change in currency
Ministry of Finance announced that they expect the change to the euro to alleviate the burden
of debt servicing, boost trade and benefit society through more economic development

BOP SURPLUS
SWITZERLAND 2012
Switzerland recorded a current account surplus of 11% of GDP in 2012 - increase from 9% of
GDP from the previous year
This increase in CA surplus was caused mainly by an increase in investment income, which
nearly doubled to CHF40 billion
In terms of trade in G&S, a surplus of CHF57 billion was recorded, compared with CHF59 in
2011
The decline was due to the fact that there was a 3% increase in expenditure on G&S, but only
a 2% increase in revenue from exports of G&S

DEFICIT
TURKEY 2017
According to forecasts from IMF, Turkey’s CA deficit is expected to rise with 4.4% of GDP in
2016 to 5.6% of GDP in 2017, with rGDP falling from 3.3% in 2016 to 2.9% in 2017
The CA deficit is perceived to be the biggest problem for Turkey’s economy
An international credit agency has reduced Turkey’s credit rating to “negative” because the
risks to the country’s credit profile have risen significantly in recent months
The CA deficit has contributed to massive depreciation of the Turkish lira, which dropped by
20% against the USD over the previous year
This is a significant problem for Turkey, which relies on a steady inflow of overseas
investment to finance its CA deficit

INDONESIA 2014
Bank of Indonesia (Central Bank) kept its main interest rate steady due to a large CA deficit
which limited its ability to lower borrowing costs to support a slowing economy
The CA deficit is expected to reach USD27b by the end of the year
The deficit widened due to seasonal factors, such as foreign debt payments and the transfers
of funds overseas by MNCs repatriating profits
Indo’s CA has been in deficit for 11 consecutive quarters as the clump in commodity prices in
recent years has reduced exports revenues, while import expenditure has remained high as a
consequence of the country’s strong economic expansion

ECONOMIC
DEVELOPMENT

Under-developed
countries

Developing countries Cambodia


Agriculture-oriented economy - rice, sugar, bananas, corn, silk - 67% of workforce employed
in agricultural economic activities - BARRIER TO ECO GRO AND DEV
¾ of territory is covered by forests
Slow-down in economic growth attributed to dependence on a narrow range of products,
markets and factor inputs
In recent years, 5 products have accounted for 80% of total exports ; 2 markets have
accounted for 69% of exports ; foreign capital has accounted for 72% of total capital
investments
Inability to diversify product basket is explained by low labour productivity (output per
worker) - low human capital, low and declining total factor productivity - due to low levels of
skills and training provided by government
Low savings rate and low domestic investment has led to reliance on external financing
sources
Solution: government should invest in human capital through education and healthcare,
creating greater value added in agriculture ; increasing competitiveness in services sector →
diversify exports, reduces reliance on a narrow range of agricultural exports ; promoting
higher saving, encouraging foreign investment (FDI) in the most productive sectors,
improving financial access by providing microfinance sources → would support domestic
investment ; provision of infrastructure would increase access of domestic firms to markets

BUT (microfinance):
Initially, run by NGOs as a poverty-alleviation strategy following war
Microfinance institutions (MFIs) and commercial banks took over microfinance with the
purpose of profit maximisation - if did not repay in squeezed time period, threatened to sell
land (main source of collateral for households)
As a result, to manage high debt levels, Cambodians are migrating for work, eating less and
pulling children out of school - majority of income for consumption of basic necessities
As of 2021, Cambodia became the most indebted country due to the volume of microfinance
debt
Literacy rate - 78%

Ministry of Women’s Affairs Cambodia - economic empowerment of women through gender


equality in education, legal protection, awareness regarding public health issues (HIV/AIDS
prevention and care) - gender wage gap narrowed from 24% in 2017 to 19% in 2020

HDI - 0.593 points out of 1

Developed countries Japan


Explore barriers to trade
E.g. overspecialization,

Barriers to economic
development (under,
developing,
developed)

Sources to overcome
barrier (natural
capital, physical
capital, human capital)

Foreign aid

Foreign direct
investment

Foreign debt

SDGs (specific goals


by the economy to
achieve economic
growth and
development - what
tools?)

NGOs - lender of last


resort

Economic growth UKRAINE 2017 - criticism of using rGDP as measure of living standards
does not lead to Ukraine has low GDP per capita ($8700) and is ranked 148/229 countries in 2017
economic BUT classified as a country with high levels of human development with an HDI of 0.743
development (ranked 84/188 countries)
Since HDI is a composite indicator which covers many dimensions, including national
income, while Ukraine faced slowing economic growth from 2015, other indicators - Life
expectancy + expected years of schooling - have consistently grown over the same period of
time

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