essay plans

• What is Foreign Direct Investment (FDI)?

  Investment by a foreign firm into a domestic business
• How does FDI impact aggregate demand (AD)?

  FDI increases investment, shifting AD to the right
• What are the long-run benefits of FDI?

  Tech transfer, skill improvement, infrastructure development
• What are risks or drawbacks of FDI?

  Profit repatriation, loss of domestic control, crowding out
• Which part of the Balance of Payments does FDI affect?

  FDI is recorded in the financial account
• What is Quantitative Easing (QE)?

  Central bank purchases of financial assets to increase money supply
• How does QE affect interest rates and AD?

  QE lowers long-term interest rates, increasing AD
• How does QE affect exchange rates?

  Lower interest rates lead to a weaker currency
• What are risks of QE?

  Asset bubbles, inflationary pressure, inequality
• What is a macroeconomic trade-off?

  Achieving one policy objective worsens another
• What does the Phillips Curve show?

  A short-run trade-off between inflation and unemployment
• Why may trade-offs not exist in the long run?

  The long-run Phillips Curve is vertical
• What is globalisation?

  The increasing interconnectedness of countries
• How does globalisation benefit economies?

  Access to larger markets, specialisation, FDI inflows
• What are disadvantages of globalisation?

  Job losses, income inequality, exploitation of labour
• What is protectionism?

  Policies that restrict imports to protect domestic industries
• What are the costs of protectionism?

  Higher prices, inefficiency, trade retaliation
• What is the infant industry argument?

  New industries need temporary protection to become competitive
• What are supply-side policies?

  Policies to improve the productive capacity of the economy
• What are limitations of supply-side policies?

  High cost, long time lags, uncertain impact
• What is fiscal policy?

  The use of government spending and taxation to influence AD
• What is expansionary fiscal policy?

  Increasing government spending or decreasing taxes to boost AD
• What is contractionary fiscal policy?

  Decreasing government spending or increasing taxes to reduce AD
• What is the fiscal multiplier?

  The ratio of change in national income to a change in spending
• What are risks of expansionary fiscal policy?

  Inflation, crowding out, debt sustainability concerns
• When should you use an AD/AS diagram?

  To show effects on output, price level, and employment
• What does a tariff diagram show?

  Effect of tariffs on price, quantity imported, consumer surplus
• What does the Phillips Curve show?

  Trade-off between inflation and unemployment
• What does a BoP diagram show?

  How financial and current accounts are affected by capital flows
• How do you evaluate macroeconomic policies?

  Consider short-term vs. long-term effects
• What limits the effectiveness of fiscal policy?

  Time lags, size of multiplier, crowding out
• What limits the effectiveness of monetary policy (including QE)?

  Liquidity trap, low confidence, interest rate insensitivity
• What makes supply-side policies more effective?

  Complementary public investment, long-term commitment
• What are the key components of evaluating macroeconomic policies?

  • Short-term vs. long-term effects
  • Elasticity and size of multiplier
  • Opportunity cost
  • Time lags
  • State of the economy (e.g. recession vs. boom)
• What are the strengths and weaknesses of fiscal policy?

  Strengths:

  • Direct impact on AD
  • Can target specific sectors

  
  

  Weaknesses:

  • Time lags
  • Risk of crowding out
  • Potential for increased debt
• What are the strengths and weaknesses of monetary policy?

  Strengths:

  • Quick implementation
  • Can influence interest rates

  
  

  Weaknesses:

  • Limited effectiveness in liquidity traps
  • Can lead to asset bubbles
• What are the strengths and weaknesses of supply-side policies?

  Strengths:

  • Improve long-term growth
  • Enhance productivity

  
  

  Weaknesses:

  • High costs
  • Long time lags