national income 4 · 2018-12-05 · na@onal income than the ini@al leakage is called the mul@plier...

LCEconomicswww.thebusinessguys.ie©

TheMul(plier

AswehaveseenfromtheCircularFlowofIncomediagram,anyinjec@onintothecircularflowofincomeresultsinanincreaseinAggregateDemand.AsAggregateDemandincreases,

• MoreGoodsandServicesarebought.

• Whenmoregoodsandservicesarebought,employersneedmoreworkers.

• Whenmoreworkersarehired,employmentincreasesandthereismoreproducedintheeconomy.

• Thismeansthattheresidentsoftheeconomyarericherandtheirstandardoflivingishigher.

• ThisisshownasanincreaseinNa@onalIncomesta@s@cs(IncreasedOutput).

•Don’tforgethowever,anincreaseinAggregateSpendingcanalsocauseinfla@on.

Likewise,anyleakageoutofthecircularflowofincome(outoftheeconomy),resultsinadecreaseinAggregateDemand.AsAggregateDemanddecreases,

• LessGoodsandServicesarebought.

• Whenlessgoodsandservicesarebought,employersneedlessworkers.

• Whenworkersarefired(employmentfalls),thereislessproducedintheeconomy.

• Thismeansthattheresidentsoftheeconomyarepoorerandtheirstandardoflivingislower.

• ThisisshownasadecreaseinNa@onalIncomesta@s@cs(ReducedOutput).

•Don’tforgethowever,adecreaseinAggregateSpendingcanalsocauseareduc@onininfla@on(ordefla@on).

JonathanTraynor


Injec(onsandLeakages

Itwouldgenerallyacceptedthatoneoftherolesorjobsofthegovernmentistotrytoincreasethestandardoflivingoftheresidentsofthecountry.WehaveseenfromourstudyoftheCircularFlowofIncomediagramthatgovernmentspendingisaninjec@onandifthegovernmentweretoincreasegovernmentspendingby€100million,thenNa@onalIncomewouldincrease.

However,thesuprisingresultfromthisisthatanincreaseingovernmentspending(aninjec@onof€100million),leadstoagreaterincreaseinNa@onalIncome(anincreaseinNa@onalIncomeofmorethan€100million).

Thiseffectofaninjec@onintotheeconomycausingagreaterincreaseinNa@onalIncomethantheini@alinjec@oniscalledthemul@pliereffect.

Thesameistrueforanyleakage.Tocon@nueonwithourexampleofgovernment,ifthegovernmentweretoraisetaxesandfromthisincreaseintaxestheyweretoreceiveanextra100millionintaxrevenue,thisincreaseintaxeswouldcauseNa@onalIncometodropbymorethan€100million.

ThiseffectofaleakageoutoftheeconomycausingagreaterdecreaseinNa@onalIncomethantheini@alleakageiscalledthemul@pliereffect.

E.g.Rossgets€10inpocketmoney.Rossspends€10inaclothesshop.Theshopownerspends€8onahaircut.Thehairdresserspends€7ofthisongroceriesinalocalshop.Theshopkeeperspends€5ofthisonataxi.Theini@alinjec@onof€10intotheeconomyhasincreasedNa@onalIncomeby€30.

Ross=Clothes€10+Hairdresser€8+Shopkeeper€7+Taxidriver€5=€30

TheSizeoftheMul(plier

Thesizeofthemul@plierdependsonthefollowing.

1) TheMarginalPropensitytoConsume.

2) TheMarginalPropensitytoSave.

3) TheMarginalPropensitytoTax.

4) TheMarginalPropensitytoImport.

Wewillnowlookateachofthemindividually

TheMul(plier:showstherela@onshipbetweenanini@alinjec@onintothecircularflowofincomeandtheeventualtotalincreaseinNa@onalIncomeresul@ngfromthisinjec@on

JonathanTraynor�2


MarginalPropensitytoConsume(MPC)

IfIearnanextra€1andIspend80cofitonconsump@ongoods,thenmyMPCis

Where∆C=ThechangeinConsump@on

∆Y=ThechangeinIncome

ThehighertheMPC(thecloseritisto1),thegreaterthegreatertheeffectthatanyinjec@on(orleakage)willhaveonNa@onalIncome.

Inshort,thebiggertheMPC,thebiggertheMul@plier.

MarginalPropensitytoSave

Savingisthatpor@onofIncomewhichisnotspent

Y=C+S

IfIearnanextra€1andIspend80cofitonconsump@ongoods,thenIhavesaved20cofit.Therefore,myMarginalPropensitytoSaveis

Where∆S=ThechangeinSavings


MarginalPropensitytoConsume(MPC):Thisisthepropor@onofeachaddi@onalunitofincomewhichisspent.

MarginalPropensitytoSave(MPS):Thisisthepropor@onofeachaddi@onalunitofincomewhichissaved.

JonathanTraynor�3

= 0.8 80100

MPC = ∆C

∆Y

= 0.2 20100

MPS = ∆S

∆Y


Fromtheaboveexamples,weshouldbeabletoseethatMPC+MPS=1.Thereasonforthisisthatifmoneyisnotspent,byitsdefini@on,itmusthavebeensaved.ThereforeMPC=1-MPSandconverselyMPS=1-MPC

ThebiggertheMPS,thesmallertheMul@plier

TheMarginalPropensitytoImport

IfIearnanextra€1andIspend10cofitonimportedgoods,thenmyMPMis

Where∆M=ThechangeinImports


ThebiggertheMPM,thesmallertheMul@plier

MarginalPropensitytoTax

IfIearnanextra€1andIhavetopay30cofittothegovernmentintaxes,thentheMPTis

Where∆T=Changeintaxespaidtothegovernment

∆Y=Changeinincome

ThebiggertheMPT,thesmallertheMul@plier

MarginalPropensitytoImport(MPM):Thisisthepropor@onofeachaddi@onalunitofincomewhichisspentonimports.

MarginalPropensitytoTax(MPT):Thisisthepropor@onofeachaddi@onalunitofincomewhichispaidintaxes

JonathanTraynor�4

= 0.1 10100

MPM = ∆M

∆Y

= 0.3 30100

MPT = ∆T

∆Y


DifferentVersionsoftheMul(plier

TherearemanydifferentversionsoftheMul@plier.Itcanincludeanycombina@onofMPC(orMPSastheseareoppositesidesofthesamecoin),MPMorMPT.However,ingeneral,therearethreemainversionsthatareused.

1) TheMul@plierforaClosedEconomy(aneconomythatdoesnottradewithanyothercountries)withnotaxa@on(nogovernment).

2) TheMul@plierforanOpenEconomy(aneconomythattradeswithothercountries)withnotaxa@on(nogovernment).

3) TheMul@plierforanOpenEconomythatincludesTaxa@on

JonathanTraynor�5

1

1 − MPC

1MPS

Or

1

(1 − MPC) + MPMOr

1MPS + MPM

1

(1 − MPC) + MPM + MPT

1MPS + MPM + MPT

Or


Mul(plierQues(ons

1) Definetheterm“TheMul@plier”.

2) StatetheFormulabywhichitismeasured.

3) Explainthevariableelementsoftheformula.

4) Ithasbeenes@matedintheIrisheconomythat(2011)

MPT=0.22MPM=0.3MPS=0.28

CalculatethevalueoftheMul@plierintheIrisheconomy.

CalculatetheIncreaseinNa@onalIncomeiftherewasaninjec@onof€100M


MPM=0.4MPT=0.24MPS=0.26




MPM=0.2MPT=0.1MPC=0.9



7) Outlinebriefly,howtaxeseffectthemul@plier(2011)

JonathanTraynor�6


AnswerstoMul(plierQues(ons

1) Definetheterm“TheMul@plier”.

Themul@pliershowstherela@onshipbetweenan(ini@al)injec@onintothecircularflowofincomeandtheeventualtotalincreaseinna@onalincomeresul@ngfromtheinjec@on.

2) StatetheFormulabywhichitismeasured.

3) Explainthevariableelementsoftheformula.

MPC–MarginalPropensitytoConsumeThisisthepropor@onofeachaddi@onalunitofincomewhichisspent.

MPM–MarginalPropensitytoImportThisisthepropor@onofeachaddi@onalunitofincomewhichisspentonimports.

MPS–MarginalPropensitytoSaveThisisthepropor@[email protected]—MarginalPropensitytoTaxThisisthepropor@onofeachaddi@onalunitofincomewhichispaidintaxes


MPT=0.22MPM=0.3MPS=0.28


CalculatetheIncreaseinNa@onalIncomeiftherewasanini@alinjec@onof€100M

TheMul@plierfortheIrisheconomyis1.25.Thismeansthatiftherewasanini@alinjec@onof€100M,Na@onalIncomewouldriseby(100X1.25)€125M.

JonathanTraynor�7

1

MPS+MPM+MPTOR

1

(1-MPC)+MPM+MPT

1

MPS+MPM+MPT=

1

0.28+0.3+0.22=

1

0.8= 1.25



MPM=0.4MPT=0.24MPS=0.26



TheMul@plierfortheIrisheconomyis1.11.Thismeansthatiftherewasanini@alinjec@onof€200M,Na@onalIncomewouldriseby(200X1.11)€222M.


MPM=0.2MPT=0.1MPC=0.9



[email protected]@alinjec@onof€500M,Na@onalIncomewouldriseby(500X2.5)€1,250M.

7) Outlinebriefly,howtaxeseffectthemul@plier(2011)

a)Taxesdecreasespendingwithintheeconomy/taxesarealeakagefromthecircularflowofna@onalincome.

b)Whenspendingdecreaseslesseconomicac@vityisgeneratedwithintheeconomy.

c)Thevalue/themagnitudeofthemul@plierdecreases.

JonathanTraynor�8

1

MPS+MPM+MPT=

1

0.26+0.4+0.24=

1

0.9= 1.11

1

(1-MPC)+MPM+MPT=

1

(1-0.9)+0.2+0.1=

1

0.1+0.3= 2.5

1

0.4=


AveragePropensitytoConsumeandAveragePropensitytoSave

L.C.Q.:Definetheterm'AveragePropensitytoConsume'(APC)andcalculatetheAPCfor2012fromtheinforma@onbelow.

ANSWER:Thefrac@onoftotalincomewhichisspentongoodsandservices

€34,000-€5,200=€28,800

Again,APC+APS=1

APC=1-APS

APS=1-APC

[email protected],thismeansthatourAPSinthissitua@onis(1-0.847)0.153.AnAPSof0.153meansthatonaveragepeoplesave15.3%oftheredisposableincome(incomearertaxeshavebeenpaidor15.3%oftherenetincome).

AveragePropensitytoConsume(APC):isthefrac@onoftotalincomewhichisspentongoodsandservices(consump@on).

AveragePropensitytoSave(APS):isthefrac@onoftotalincomewhichissaved.

JonathanTraynor�9

APC = C

Y

Page 3 of 8

6. Explain what is meant by the economic term ‘Paradox of Thrift’. __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________

(17 marks) 7. Outline four contributions of Adam Smith to economic thought.

(i)________________________________________________________________________________

(ii)________________________________________________________________________________

(iii)_______________________________________________________________________________ (iv)_______________________________________________________________________________

(17 marks) 8. Define the term 'Average Propensity to Consume' (APC) and calculate the APC for 2012 from the information below. (Show your workings.)

Year Disposable Income Savings 2012 €34,000 €5,200

Definition: ____________________________________ ______________________________________________

Answer: ______________________________________

(17 marks) 9. A recent report to the Irish government highlighted the growing issue of alcohol abuse in Ireland. (a) Outline one private cost and one social cost related to excessive alcohol consumption.

(b) Describe one advantage and one disadvantage of the government imposing a minimum price on alcohol products.

(a) Private Cost:____________________________________________________________________

Social Cost:_____________________________________________________________________

(b) Advantage:______________________________________________________________________

__________________________________________________________________________________ Disadvantage:____________________________________________________________________

__________________________________________________________________________________ (17 marks)

Remember to return this question paper with the answer book(s) used to answer the questions in Section B.

WORKINGS

€28,800€34,000

=0.847or84.7% ANS=0.847or84.7%

APS = S

Y


MoreMul(plierQues(ons

1) ThefollowingtableshowsthelevelofNa@onalIncome;itsConsump@on,InvestmentandExportcomponentsattheendofperiods1and2,andthelevelofImportsattheendofperiod1.(Forthepurposeofthisques@onyoumayignorethegovernmentsector).

Calculatethefollowing,showingallyourworkings:i) LevelofImportsattheendofperiod2ii) Levelofsavingsattheendofperiod2iii) MarginalPropensitytoConsume(MPC)iv) SizeoftheMul@plier

Answer

i) LevelofImportsattheendofperiod2Y=C+I+X–M50,000=39,000+18,000+21,000–M50,000–39,000–18,000–21,000=–M50,000–78,000=–M –28,000=–M M=28,000

ii) Savingsattheendofperiod2Y=C+SY-C=S50,000–39,000=SS=11,000

iii) MarginalPropensitytoConsume

JonathanTraynor�10

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!!!!!!!!!!!!

2009&

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Page 6 of 8

5. (a) Given that Gross National Product at Current Market Prices is T200m, price subsidies T5m, depreciation T12m and indirect taxes T30m. Calculate the value of each of the following: Show all your workings. (i) Gross National Product at Factor Cost; (ii) Net National Product at Factor Cost/National Income.

(20 marks) (b) Explain the economic effect which each of the following could have on the level of GNP at Market Prices: (i) a reduction in the general level of VAT; (ii) a reduction in the subsidies paid to farmers.

(20 marks)

(c) (i) Outline the main uses of National Income Statistics. (ii) State and explain four reasons why care should be taken when using National Income Statistics as a measure of economic performance of a country.

(35 marks)

[75 marks] 6. (a) It has been suggested that the main commercial (retail) banks in Ireland should be

nationalised. (i) Explain the underlined terms.

(ii) Outline two possible economic arguments for and two possible economic arguments against the nationalisation of the banks.

(30 marks)

(b) (i) State and explain what you consider to be the three most important economic aims of the Irish Government. (ii) Outline two examples of possible conflicts between government economic

aims/objectives. (25 marks)

(c) The economist Milton Friedman was regarded as one of the major thinkers of the monetarist school of economic thought. Outline four features of YMonetarismW. (20 marks)

[75 marks]

Page 6 of 8

5. (a) The following table shows the level of National Income its Consumption, Investment and

Export components at the end of periods 1 and 2, and the level of Imports at the end of period 1. (For the purpose of this question you may ignore the Government sector).

National Income Consumption Investment Exports Imports

Period 1 €40,000 €30,000 €15,000 €15,000 €20,000

Period 2 €50,000 €39,000 €18,000 €21,000 ?

Calculate the following, showing all your workings:

(i) Level of imports at the end of period 2; (ii) Level of savings at the end of period 2; (iii) Marginal Propensity to Consume (MPC); (iv) Size of the Multiplier.

(20 marks)

(b) ‘Ireland is described as a small open economy and this affects the government’s ability to influence the level of aggregate demand in the country’.

Explain this statement, using the Circular Flow of Income diagram to support your answer. (30 marks)

(c) Outline the limitations of using Gross National Product at Current Market Prices when

comparing the average standard of living between two different years. (25 marks)

[75 marks] 6. (a) Define each of the following terms:

(i) Current Budget Deficit; (ii) Exchequer Borrowing Requirement; (iii) Public Sector Borrowing Requirement; (iv) National Debt.

(20 marks)

(b) Ireland’s National Debt grew from €36bn at end of 2006 to €50.4bn at end of 2008.

(i) Outline the major reasons for the increase in National Debt. (ii) Describe the economic consequences (positive and negative) of the increase in National

Debt in recent years. (35 marks)

(c) The Irish economy will experience a substantial Current Budget Deficit for 2009. You have

been employed as an Economic Advisor to the Minister for Finance.

(i) State and explain two specific courses of action (one on the revenue side and one on the expenditure side of the Government Account) you would advise the Minister to take in order to reduce significantly the Current Budget Deficit.

(ii) Outline the possible economic effect(s) of each course of action you have chosen. (20 marks)

[75 marks]


iv) SizeoftheMul@plier

[email protected]@[email protected]@mesthatinjec@oninNa@onalIncome(Y).




2) ThetableshowsthelevelofNa@onalIncome,Consump@on,Investment;Exports,andImportsattheendofYear1&Year2

Calculatethefollowing,showingallyourworkingsi) ThelevelofExportsinYear2ii) TheMarginalPropensitytoImportiii) TheMarginalPropensitytoSaveiv) [email protected]

figure.

Answer

i) ThelevelofExportsinYear2Y=C+I+G+X-M€11,200=€9,500+€1,300+0+X-€1,100€11,200=€10,800-€1,100+X€11,200=€9,700+X€11,200-€9,700=X€1,500=X

ii) TheMarginalPropensitytoImport

iii) TheMarginalPropensitytoSaveMPC+MPS=1MPS=1-MPC

MPC=0.75

MPS=1-0.75

MPS=0.25


Page 6 of 8

5. (a) Explain the following economic terms, using appropriate examples in each case:

(i) Government Current Budget; (ii) Government Capital Budget; (iii) Revenue Buoyancy; (iv) Regressive Taxation.

(25 marks) (b) State and explain how a government budget could be affected by each of the following developments:

(i) a rise in interest rates in the economy; (ii) a fall in the rate of stamp duty on property purchased; (iii) the introduction of subsidised child care for all families within the state.

(30 marks) (c) You are appointed Economic Advisor to the Minister for Finance. Outline the economic arguments you would identify for the Minister in favour of lowering Irish income taxation rates. (20 marks)

[75 marks] 6. (a) The main components of National Income are: Consumption, Investment, Government Expenditure, Exports, Imports. (i) Show the equation which links all of these components with the level of National Income in the economy. (ii) Explain what determines/influences the size of each of these components of National Income. (25 marks) (b) The table below shows the level of National Income, Consumption, Investment, Exports and Imports at the end of Year 1 and Year 2. (For the purpose of this question you may ignore the government sector.)

Year National Income Consumption Investment Exports Imports

1 €10,000 €8,600 €1,000 €1,200 €800 2 €11,200 €9,500 €1,300 €1,100

Calculate the following, showing all your workings: (i) The level of Exports in Year 2; (ii) The Marginal Propensity to Import; (iii) The Marginal Propensity to Save; (iv) The size of the Multiplier. Explain the economic meaning of this multiplier figure. (25 marks) (c) Less developed countries (LDCs) are primarily concerned with achieving economic development

while developed countries are concerned with achieving economic growth. (i) Distinguish between the two underlined terms. (ii) Outline THREE characteristics which indicate that a country is a LDC. (25 marks) [75 marks]


iv) [email protected].

(NOTE:Thereisneveranygovernmentinthesetableques@onssotherecannotbeanyMPT)

MPM=0.25MPS=0.25

Thisfigure[2]meansthatforanygiveninjec@onintotheeconomy,na@onalincomewillincreasebytwicetheoriginalinjec@on.




3) ThetablebelowshowsthelevelsofNa@onalIncome,Consump@on,Investment,ExportsandImportsattheendofYear1andYear2.(Forthepurposeofthisques@onyoumayignorethegovernmentsector.)

Calculatethefollowing,showingallyourworkings:

i) ThelevelofImportsinYear2.

ii) TheMarginalPropensitytoImport.

iii) TheMarginalPropensitytoSave.


Answer

i) ThelevelofImportsinYear2Y=C+I+G+X-M€5,600=€4,750+€650+0+€750-M€5,600=€6,150-M€5,600-€6,150=-M-€550=-M€550=M

ii) TheMarginalPropensitytoImport


Page 6 of 7

5. (a) Discuss how economic development in less developed countries (LDCs) might be promoted:

(i) by their own governments; (ii) by foreign governments / agencies. (30 marks)

(b) (i) Discuss THREE economic benefits of economic development to LDCs.

(ii) Discuss THREE economic costs of economic development to LDCs. (30 marks)

(c) Discuss steps which could be taken to solve the debt crisis which LDCs are experiencing.

(15 marks)

[75 marks]

6. (a) Explain the following terms which are commonly used in estimating the National Income

statistics of a country: (i) Incomes-in-kind; (ii) Transfer Payments; (iii) Net Factor Income from the Rest of the World.

(20 marks)

(b) The table below shows the levels of National Income, Consumption, Investment, Exports and Imports at the end of Year 1 and Year 2.

(For the purpose of this question you may ignore the government sector.)

Year National Income Consumption Investment Exports Imports 1 €5,000 €4,300 €500 €600 €400 2 €5,600 €4,750 €650 €750


(i) The level of Imports in Year 2. (ii) The Marginal Propensity to Import. (iii) The Marginal Propensity to Save. (iv) The size of the Multiplier. Explain the economic meaning of this figure.

(25 marks)

(c) National Income statistics provide important information, but are subject to certain limitations. (i) Explain THREE reasons why it is useful to have these statistics. (ii) Explain THREE limitations as to the use of these statistics.

(30 marks)

[75 marks]


iii) TheMarginalPropensitytoSaveMPC+MPS=1MPS=1-MPC

MPC=0.75

MPS=1-0.75

MPS=0.25



MPM=0.25MPS=0.25




MoreMultlplierQues(ons

4) ThefollowingtableshowsthelevelsofNa@onalIncome,Consump@on,Investment,ExportsandImportsattheendofPeriod1andPeriod2.Forthepurposeofthisques@onyoumayignorethegovernmentsector.

Calculatethefollowing,showingallyourworkings:

i) ThelevelofNa@onalIncomeinperiod2.

ii) TheMarginalPropensitytoSave.

iii) TheMarginalPropensitytoImport.

iv) ThesizeoftheMul@plier.

Answers

i) [email protected]=C+I+G+X-MY=£5,250+£1,300+£0+£1,200-£1,350Y=£7,750-£1,350Y=£6,400

ii) TheMarginalPropensitytoSaveMPC+MPS=1MPS=1-MPC

MPC=0.75

MPS=1-0.75

MPS=0.25


7. (a) Define clearly the following terms:

(i) Current Budget Surplus;

(ii) Exchequer Borrowing Requirement;

(iii) National Debt. (20 marks)

(b) Discuss the main characteristics of a good system of taxation. (20 marks)

(c) Discuss the main effects on the Irish economy of the reduction in rates of income tax in recentGovernment Budgets. (25 marks)

(d) Explain what is meant by the term ‘tax harmonisation’. (10 marks)[75 marks]

8. (a) Explain by means of a diagram of Circular Flow of Income for an open economy the forces whichinfluence the level of aggregate demand. (25 marks)

(b) The following table shows the levels of National Income, Consumption, Investment, Exports andImports at the end of Period 1 and Period 2. For the purpose of this question you may ignore thegovernment sector.


(i) The level of National Income in period 2.

(ii) The Marginal Propensity to Save.

(iii) The Marginal Propensity to Import.

(iv) The size of the Multiplier. (20 marks)

(c) Given Gross National Product at Current Market Prices for the years 1990 and 2000, state andexplain the relevance of FOUR other pieces of information in assessing changes in the average standardof living between 1990 and 2000. (30 marks)

[75 marks]

Page 4 of 4

Period National Income Consumption Investment Exports Imports1 £5,800 £4,800 £1,200 £1,000 £1,2002 £5,250 £1,300 £1,200 £1,350


iii)TheMarginalPropensitytoImport.



MPM=0.25MPS=0.25




EconomicGrowth

Ifyouhaveeverspokentoyourgrandparentsaboutwhattheirliveswerelikewhentheywereyoung,mostlikelyyoulearnedanimportantfactabouteconomics.

MaterialstandardsofLivinghaveimprovedsubstan6allyover6meformostfamilies,inmostcountries.

WhydomostIrishpeopletodayenjoyamuchhigherstandardoflivingthantheirgrandparentsandgreatgrandparents?Theanswerislongruneconomicgrowth.

RealGNPperCapitaandEconomicGrowth

Thekeysta@s@cusedtotrackeconomicgrowthisRealGNPperCapita.ThisisRealGNPdividedbythepopula@onsize.WeuseGNPbecauseGNPmeasuresthetotalvalueofaneconomy’sproduc@onoffinalgoodsandservices,whichisthesameastheincomeearnedbyIrishpeopleinagivenyear.WeuseRealGNPbecausewewanttoseparatechangesinthequan@tyofgoodsandservicesfromrisesinthePriceLevel.WeuseRealGNPpercapitabecausewewanttoisolatetheeffectofchangesinthepopula@on.Forexample,otherthingsequal,anincreaseinthepopula@onlowersthestandardoflivingfortheaverageperson.TherearemorepeopletoshareagivenamountofGNP.AnincreaseinRealGNPthatonlymatchesanincreaseinpopula@onleavestheaveragestandardoflivingunchanged.

DiscusstheEconomicEffectsofanIncreaseintheRateofEconomicGrowthintheIrishEconomy

Posi(ve

1) IncreasedEmployment:Economicgrowthwillleadtoincreaseddemandwithmorelabourbeingdemandedtoproducethis.

2) ImprovedGovernmentFinances:Withariseinspending–indirecttaxrevenuerises;morepeopleatworkwillresultinanincreaseindirecttaxrevenue;expenditureonsocialwelfareshouldfall.

3) EffectsonBalanceofPayments:Iftheincreaseintherateofeconomicgrowthisexportledthenthebalanceofpaymentsposi@onimproves.

EconomicGrowth:AnincreaseinrealGNPpercapita,withoutanychangesinthestructureofsociety



4) ImprovedStandardofLiving:Economicgrowthwillresultinincreasedwealthintheeconomyallowingustobuymoregoodsandservices/areduc@oninpoverty/bezerstateservices.

5) EffectsonMigra(on:Ifjobsopportuni@esexistthenpeoplewhohadplannedtoemigratemaystayhereandmoreimmigrantsmaybeazractedtotheeconomy.

6) InvestmentOpportuni(es:Economicgrowthindicatesagrowingeconomyandthismayazractaddi@onalinvestment.

Nega(ve

1) Infla(onaryPressures:Withariseinthelevelofeconomicac@vitythelevelofdemand-pullinfla@onwillrise.

2) UseofScarceResources:Economicgrowthresultsinanincreaseddemandforscarceresourcese.g.oil.Theincreaseddemandmayinvolvedamagetotheenvironment.

3) IncreasedDemandforImports:Economicgrowthincreasesincomesandspendingpoweranddemandforimportsmayrise,worseningthebalanceofpaymentsposi@on.

4) RevisedExpecta(onsbyCi(zens:Witheconomicgrowthci@zensmayaltertheirexpecta@onsofgovernmentandexpectmoreservicesfromthestatee.g.revisedtaxes;growthinincomes;wagedemandsetc.

5) UnevenDistribu(onofWealth:Iftheincreaseinwealthisnotfairlydistributedthenthegapbetweenrichandpoormaywiden.

DiscusstheEconomicconsequenceswhichafallinthelevelofEconomicGrowth(GNP)mayhaveontheIrishEconomy

Posi(ve

1) Modera(oninPriceIncreases:Withthefallinthelevelofeconomicac@vitythelevelofdemandinducedinfla@onwillfall.

2) Reduc(oninLabourShortages:Thefallindemandforgoods&servicesmaydecreasethedemandforlabourincertainsectors,easinglabourshortages.

3) Modera(oninWageDemands:Expecta@onsbyworkersmaydeclinewithrespecttopayincreases.

4) RevisedExpecta(onsbyCi(zens:Duringaneconomicboomourexpecta@onsgrowandmayconflict.WithfallingGNPwemayreviseourexpecta@onsdownwardsi.e.expectlessinvestmentininfrastructure.



5) ReducedDemandforImports:Areduc@oninGNPlowersincomesandspendingpoweranddemandforimportsmayfallthusimprovingourBalanceofPaymentposi@on.

6) RestoreBalanceintheHousingMarket:ThefallinGNPwillreducespendingpowerandhelpreduceinfla@oninthismarket,easingittowardsequilibrium

7) ReducedImmigra(on:ReducedGNPwilllowerdemandandreduceopportuni@esforemployment,leadingtoapossiblefallinimmigra@on

8) LessPressureonStateInfrastructure:LowerGNPresultsinlessdemandforscarceresources/lessdamagetotheenvironment/[email protected]

Nega(ve

1) Unemployment:Areduc@oninGNPreducesdemandandthismayleadtoareduc@oninemployment.

2) StrainonGovernmentFinances:Thegovernmentmaysufferadeclineintheirtaxrevenuesandanincreaseincurrentspendingonsocialwelfarewillputastrainongovernmentfinances.

3) ReducedInvestmentOpportuni(es:WithlowerGNPandcontrac@ngdemandentrepreneursmayhavefeweropportuni@esforprofitableinvestments.

4) Reduc(oninStandardofLiving:ThefallinGNPlowersaverageincomesandthiswillreducetheaveragestandardofliving.

5) ProvisionofStateServices/Infrastructure:Thedis-improvementinstatefinanceswillmakeitmoredifficulttofundimprovementsincurrentstateservicesi.e.thehealthandeduca@onsectorsandmaymakeitmoredifficulttofundmajorinfrastructuraldevelopmentse.g.ourroadinfrastructure.

6) PrivateSectorWorkersTargeted:WithfallingGNPbusinessesmayra@onaliseandhenceprivatesectoremployeesmaybeaffectedmoreadversely,thanpublicsectoremployees.



OutlinePossibleRestric(onsontheGrowthofBusinessesintheIrishEconomyatPresent

1) LimitedAvailabilityofCredit:Thebankingcrisishasresultedinalackofcredit,whichisamajorobstacletotheexpansionofbusiness.

2) Reduc(oninDomes(cDemand:Thecon@nuingrecessionhasresultedinamajordropinspendingresul@nginadropindomes@cdemandandlessopportuni@esforbusiness.

3) Restric(veWageAgreements:Theexistenceoftheminimumwage;theexistenceofJLCagreementslimitstheabilityoffirmstohirelabourwhichrestrictstheabilityoffirmtoexpand/grow.

4) Legisla(veRequirements/Framework:Permissionmayhavetobeobtainedfromthelocalauthority;statebodyetc.Forexampleifapersonwantstoextendarestaurantthencertainrequirementsmustbefulfilled.

5) Merger/TakeoverLegisla(on:Somebusinesseswishingtoexpandmayfaceaninves@ga@onunderEU(Irish)mergerandtakeoverlegisla@on.TheproposedtakeoverofAerLingusbyRyanairwasprohibitedunderEUlaws.

6) HighCostsofProduc(on:[email protected];u@litycosts;insurancecosts;costsofrawmaterials;andhighinterestratesmakesborrowingmoreexpensive.



LessDevelopedCountries(LDC’s)

Wehavediscussedtheimportanceofeconomicgrowth.Wehavesaidthatitisthereasonforthedifferenceinstandardoflivingthatweenjoycomparedtoourgrandparents.Lookingbackatthelivesofourgreatgrandparents,theirlivesappeartobequitespartan.Noaccesstoan@bio@cs,modernmedicinelikeMRI’s,X-Raysetc.Nointernet,noskydigital,nocars.Inthecaseofourgreatgrandparents,norunningwater.Thisisanincrediblyharshwayoflife,buttherearemanycountriestodaythatthesitua@onjustdescribedforourgreatgrandparentsisthenorm.Asimportantasitisforeverycountrytoencourageeconomicgrowth,itismoreimportantforLessDevelopedCountries.BeforewelookathowLDC’scanpromotegrowth,wewilllookatwhattheyare.

Characteris(csofLDC’s

1) HighRateofPopula(onGrowth:Ratesareveryhighresul@ngineconomicproblemswhichthegovernmentfindshardtoresolve.

2) Famine:ToofrequentlyfamineoccursinLDCsresul@ngindisease;deathsatearlyage;highmedicalcosts.

3) ForeignDebts:Theseareveryhigh.Theirrepaymentusesupgovernmentrevenueandtheirrepaymentscancrippletheeconomy.

4) UnevenDistribu(onofWealth:InsomeLDC’s,aminoritymaycontrolalargepartofthecountry’swealthresul@nginwidespreadpoverty.

5) Over-DependenceononeCrop:SomeLDCsareover-dependentononecrop.Thecountrymaybesubjecttocropfailureand/orawidevaria@oninexportprices.

6) HighPercentageofthePopula(onengagedinExtrac(ve/PrimaryIndustries:Thisresultsinnotenoughworkersinsecondary&ter@arysectors,resul@nginlowstandardsofliving.

7) PoorTermsofTrade:LDCsmaysufferfromlowexportpricesandhighimportpricesandhencethegainsfromtradearereduced.

8) PoorLivingCondi(ons/Inadequateinfrastructure:Alargepercentageofthepopula@onliveinshantytownswithnowaterandpoorsanita@on.

9) LackofCapital:LDCsmaylackthecapitalwhichisessen@alforeconomicdevelopment&employmentgenera@on.

10)LowPerCapitaIncomefortheMajorityofthePopula(on:Thisresultsinapoorstandardoflivingandaconsequentlowdemandforgoodsandservices.



11)PoorLevelsofEduca(on/Literacy:Thiswillactasanimpedimenttoeconomicdevelopment,resul@nginhighunemployment.

12)Poli(calCorrup(on:SomeLDCsspendalotonbureaucra@cadministra@on/militaryspendingwhichcanresultincivilunrest.

13)Exploita(onbyMul(na(onalsofLDCs/EconomicDualism:Thismaytaketheformoflowwagerates;lackofcarefortheenvironment;controloverkeyexportsetc.

EconomicGrowthV’sEconomicDevelopment

WehavetalkedabouteconomicgrowthandsaidthatitisanincreaseinGNPpercapitawithnostructuralchangetosociety.

Itjustmeansthattherewasmorestuffmadethisyearthanlastyear.

Whendiscussinglessdevelopedcountries(LDC’s),hugechangeshavetooccuriftherestandardoflivingistoconvergetothatoftheFirstWorld.Morethanjusteconomicgrowth,economicdevelopmenthastooccur.

LessDevelopedCountriesneedeconomicdevelopment.Theyneedtochangehowtheyproducetheireconomicgoods.Lookingbackatthecharacteris@csofLDC’s,therearealotofthingsthatLDC’smustfixiftheyaretoconvergetothewealthofdevelopedna@ons.Theyneedtocontroltherateofpopula@ongrowth,stoprelyingononecropwhichwouldavoidfamine.Increasetheamountofcapitalandliteracylevels,whichwouldincreaseworkerproduc@vityandallowotherworkerstoworkoutsidetheextrac@veindustries.Thisinvolvesachangeinthestructureofsociety.Greateramountsofcapital,highereduca@onlevels,bezerroadsandtechnology,thisiseconomicdevelopment.Onewaytolookateconomicdevelopmentisthatitistheaddi@onofeconomicgrowthoveranumberofyears.

NowthatweunderstandtheimportanceofeconomicdevelopmentwewilllookatthewaysthatthegovernmentofLDC’sandfirstworldgovernmentscoulddotopromoteeconomicdevelopment.

EconomicGrowth:AnincreaseinrealGNPpercapita,withoutanychangesinthestructureofsociety

EconomicDevelopment:AnincreaseinrealGNPpercapita,whichisaccompaniedbyafundamentalchangeinthestructureofsociety



PoliciesthatGovernment’sinLDC’scouldtaketoPromoteEconomicDevelopment

1) PromotePopula(onControl:Governmentscouldencourageareduc@oninpopula@onbyvariousmeasuresincluding:educa@ngthepopula@on[inmethodsoffamilyplanning];improvingthewelfareofitsci@zens;providingbezersocialservicesforitsci@zens

2) ImproveBasicInfrastructure:Provisionofcleanwater&[email protected],powersuppliesetc.

3) PromoteLand/AgriculturalReform:Decreaseemphasisononecrop-diversifyproduc@on.Trytospreadownershipofland.Improveproduc@onmethods-modernisetheagriculturalindustry.

4) ImproveEduca(on:Startwithabasicliteracyprogrammetoimproveliteracyskills.Providetechnicalskillstothepopula@[email protected]@atefurthereduca@onprogrammes.

5) Incen(vesforDevelopmentofEnterprise:Trytofosteramovementawayfromadependencycultureandencourageenterprise.Useborrowingstoencourageenterprisesoastocreatesustainableemployment.

6) StateBureaucracy/Corrup(on;SpendingonArms:Trytoreducebureaucracywithinstateins@[email protected]@on-sothataidflowstothosewhoitwasintendedfor.Divertfundsfromarmsspendingtomoreurgentcurrentrequirements.

PoliciesthatGovernment’sinOtherCountriescouldtaketoPromoteEconomicDevelopmentinLDC’s

1) AssistForeignAidProgrammes:Governmentscancon@nuewithaidtohelpinemergencysitua@ons.Theycanalsoprovidemorelongtermaidtohelpwiththedevelopmentoftheinfrastructure/provisionofeduca@onetc.

2) RestructuretheirNa(onalDebts:Iftherespec@vena@onaldebtswerecancelledthenthesefundswouldbecomeavailableforthecountrytousefordevelopment.

3) ImproveTradingOpportuni(es:Improveaccesstomarketsinthedevelopedworld-outletfortheirexports.Improvethetermsoftradeavailable-higherpricesfortheirexports.

4) EncourageMul(na(onalstoSetupFirmsThere:Thesecouldprovidetheworkerswithskills.The(fair)wagesreceivedcouldhelpboostdomes@cdemandandprovidetaxrevenueforthestate.



5) AssistLDC'swithAvailableTechnologies:TheprovisionofsimpletechnologiestotheLDC'swouldhelpwithimprovingstandardsofliving;increaseproduc@vecapacity.

6) AssistPeaceMeasuresandPromotePoli(calStability:Economicdevelopmentrequiresapeacefulenvironment.Foreigncountriescouldprovidepeacekeepingtroopsandencouragethemovementtowardspoli@calstability.

EconomicBenefitsofEconomicDevelopmenttoLDC’s

NOTE:Thelistbelowalsoanswerstheques@on“WhataretheEconomicbenefitsofEconomicGrowthforLDC’s”

1) IncreasedStandardofLiving:Bezereduca@on,improvedhealthservices,increasedlifeexpectancy,bezerhousing,incomesshouldimprove.

2) Employment:Increasedopportuni@esforemploymentthroughincreaseddemand.

3) IncreasedResourcesAvailabletotheGovernments:Taxrevenuewillallowthegovernmentscopeforfurtherinvestment.

4) Allevia(onofPoverty:Moreschoolsandhousesandotheressen@alsserviceswillhelpreducepoverty.

5) InvestmentinResearch&Development:Moremoniesshouldbecomeavailableforinvestmentwhichwillincreaseeconomicgrowth.

EconomicCostsofEconomicDevelopmenttoLDC’s

1) UnfairDistribu(onofBenefits/Wideningpovertygap:Theincreasedwealthmaynottrickledowntothepeoplewhomostneedit.

2) CoststoEnvironment:Increasedpollu@on,Disfigurementofthelandscape;largescaleurbansprawl.

3) Migra(on:Largescalemovementfromruraltourbanareas.Lossoftradi@onalvalues.

4) WelfaremaynotImprove:Theincreaseinwealthmayhavebeenbroughtaboutthroughchangedworkingprac@ces;movementofthepopula@on;crimeinareasetc.

5) ScarcerResources:Byachievingeconomicdevelopmentthesecountriesfurtheruseupthescarceresourcesoftheworld.



AdvantagesfortheIrishEconomyofIncreasedGrowthRatesinLDCs

1) IncreasedExportsorLargerMarket:WithhigherincomespeopleinLDCsmaybeabletobuymoreexportsresul@nginincreasedeconomicgrowthinIreland.

2) LowerIrishConsumerPrices:LDCsmaybeabletoselltheircommodi@esinIrelandatcheaperpricesthandomes@callyproducedgoods.

3) Employment:Ifexportsincreasethentheopportuni@esforjobsinIrelandincreases.

4) LessNeedforIrishStateAid:IfLDCsexperiencegrowththenthismayreducetheneedfortheIrishgovernmenttofunddevelopment/thegovernmentcanusethismoneyforsomethingelse.

5) DisposableIncomesinIreland:TheremaybelessneedtogivefinancialaidandsoIrishci@zensmayhaveincreaseddisposableincome.

6) EconomiesofScale:IfIrishfirmsincreaseproduc@ontosupplytheLDCstheymaybenefitfromeconomiesofscale.

DisadvantagesfortheIrishEconomyofIncreasedGrowthRatesinLDCs

1) Re-loca(onofCompanies:SomeMNCs/Irishfirmsmayre-locatetoLDCsresul@nginunemploymentinIreland.

2) GreaterImportBill:IfthegoodsfromLDCsarecheaperitmayresultinincreasedimports,ahigherimportbill,joblossesinIreland.

3) IncreasedWorldPollu(on:Economicgrowthmaycauseincreasedpollu@onwiththeconsequentnecessityofIrelandhavingtoaddressthis/increasedcarbonemissions.



SocialCostsofEconomicDevelopment

ExamplesofSocialCosts

1) Pollu(onofAirorWater:Whenbusinessesdisposeofwasteproductsfromtheproduc@onprocessinalakebesideitkillingwildlife.

2) DisfigurementoftheLandscape:Theconstruc@onofroadsconfiguresthelandscape

3) PossiblelossofCulturalHeritage:Theconstruc@onoftheM3throughthehillofTara

4) TrafficConges(on:Thiscausesstress,furtherairpollu@onandnoisepollu@on

5) Reduc(oninPublicAmeni(es:Communi@eshavelesspublicspaceslikeparks,playgroundsetc.

6) GlobalWarming:Increasedcarbonemissionsaffectsglobalweatherpazerns

OilPricesrosesteadilylastyear.Statetwoeconomicreasonsforthisdevelopment.Giveonesocialcostandonesocialbenefitoftherising

prices.

Reasons

1) GreaterDemandforOil:NewlyindustrialisedcountriessuchasChina,India(BRIC).

2) Affluence/EconomicGrowth:withhigherdisposableincomes/greaterpurchasingpower,asaresultofeconomicgrowththereisagreaterdemandforbiggervehicles,moreairlinetraveldrivingupoilprices.

3) ReservesofOilDeclining/HighCostofExtrac(on:Oilisanon-renewableresource.

4) GreenTaxes/ExciseDu(es:Inmanycountriesapercentageofthepriceisaformoftaxa@on.

5) LackofProduc(oninMiddleEast;e.g.Iraqconflict,poli@caluncertainty.

6) Specula(on:investorsarespecula@ngonfuturepricesofoilinworldmarkets.

SocialCosts:arethecostthatsocietyhastopayfortheexistenceofapar@culargoodorservice



SocialCosts

1) EnvironmentalDamage:Oilexplora@onincreasesasreservesrunlow(Irishcoastline)/destroyingrainforestsinordertogrowcropsforbiofuels.

2) LossofExciseDuty:Ifpeoplecutbackonuseofoil,governmentlosestaxrevenue.

3) IncreasingInfla(on:Therisingpriceofoilhasaddedtoinfla@onarypressuresinsomeeconomiesandaconsequentfallineconomicgrowth.

4) RisingWorldFoodPrices:Ascountriesswitchproduc@ontocropsforbiofuels,foodpricesrise.

5) ShortageofFood:par@cularlyindevelopingna@ons.

SocialBenefits

1) Environment:theremaybeareduc@oninpollu@onaspeoplecutbackonusethushelpingenvironment/greatereconomyintheuseofoil.

2) PublicTransport:Ifoilcostsriseconsumersmaybemorewillingtousepublictransport.

3) LessTrafficConges(on:Consumerscutbackonuseofcars.

4) Incen(vetoSourceAlterna(veSourcesofEnergy:Asoilbecomesexpensiveothersourcesofenergymaybecomeamoreviablesolu@on.

WhataretheSocialEffectsofConstruc(ngNewRoadsinIreland

SocialBenefits

1) TrafficConges(on:Withnewroads,trafficconges@oninanareamayease.

2) LessStress:Withfewerdelays,stressfortravelersmaybereduced.

3) ShorterTravelingTime:Bezerroadsmaymakeitpossibleforshortercommu@ng@metoworkorschool.

4) ImprovementofInfrastructure:Withtheinfrastructureimproving,azrac@ngnewindustrymaybeeasier.

5) EnhancedEnvironment:Ifnewroadsby-passtowns,itmayallowthetownstoredevelopandenhancetheirphysicalenvironmenttothebenefitofallci@zens.



6) TollRoadRevenues:Iftheroadsaretollroads,thiswillbringrevenuetothegovernmentintheformofVATreceiptsandeventuallyownershipmaypasstothestate.

7) ImprovedSafety:Newerroadsmayimprovesafetyandhelpreducefatali@esontheroads.

SocialCosts

1) MorePollu(on:Greaternoiseandincreasedemissionsforthosethatliveclosetothenewroads.

2) IncreasedPayment:Ifthenewroadsaretollroadsthenthedrivermustnowpayfortheirusewhichwasfreebeforehand.

3) IncreaseinLandPrices:LandPricesadjacenttothesenewroadsmayincrease,causingdifficultytothosewhomaywishtobuyland.

4) DamagetolocalEnvironment:Thelandscapethroughwhichthenewroadsareconstructedmaybedisfigured.

5) Disrup(ontoLocalCommuni(es:Thenewroadsmayeffectthenatureofthecommunitylifeforexis@ngcommuni@es.


national income 4 · 2018-12-05 · na@onal income than the ini@al leakage is called the mul@plier...

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