Study Notes
Macroeconomic policies play a crucial role in shaping the global economy, but they come with challenges such as controlling TNCs and dealing with inaccurate information. Policymakers must navigate these issues to effectively manage local, national, and global economic impacts.
- Demand-side Policies — Policies aimed at influencing the demand in an economy, often used during economic crises. Example: Expansionary monetary policies post-2008 aimed to boost aggregate demand.
- Quantitative Easing — A monetary policy where central banks buy financial assets to increase money supply and encourage lending. Example: Post-2008, central banks bought government bonds to alleviate credit scarcity.
- Transnational Companies (TNCs) — Large corporations operating in multiple countries, often influencing local economies. Example: TNCs can create jobs but may also engage in tax avoidance.
- Transfer Pricing — Setting prices for transactions between divisions of a multinational company to minimize taxes. Example: Governments have implemented rules to regulate transfer pricing and reduce tax avoidance.
- External Shocks — Unpredictable events that affect economies, often beyond the control of national governments. Example: The 2007-08 financial crisis was an external shock impacting global economies.
Exam Tips
Key Definitions to Remember
- Demand-side Policies
- Quantitative Easing
- Transnational Companies (TNCs)
- Transfer Pricing
- External Shocks
Common Confusions
- Confusing fiscal and monetary policies
- Misunderstanding the impact of TNCs on local vs. global economies
Typical Exam Questions
- Why is reducing tax avoidance by TNCs important? It ensures fair tax contributions and supports public finances.
- Give an example of a policy change used by an individual economy which had an impact on the global economy. China's shift to consumption-led growth influenced global exporters.
- What problems face policymakers when making decisions? Inaccurate information, outdated data, and external shocks.
What Examiners Usually Test
- Understanding of how macroeconomic policies affect different economies
- Ability to explain the role and impact of TNCs
- Knowledge of challenges faced by policymakers