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    I was wondering why it's bad to be over-reliant on large debt flows?

    Also, some obvious and simplistic questions that I'm having trouble in answering:

    How does openness to international trade lead to growth and development?

    Û



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    (Original post by zubhav)
    I was wondering why it's bad to be over-reliant on large debt flows?

    Also, some obvious and simplistic questions that I'm having trouble in answering:

    How does openness to international trade lead to growth and development?

    Û



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    Disads if financial integration;
    Ad grows faster than AS which is unsustainable
    Problems with fdi and mncs: don't pay tax, deplete resources etc
    Exposed to the world economy and reliant on it to do well
    And debt burden


    Hope that helps!


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    does anyone know the answer to this q, I have no idea how to go about answering it

    why would countries such as France and Germany be reluctant to bail out other countries in debt


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    (Original post by indyb16)
    does anyone know the answer to this q, I have no idea how to go about answering it

    why would countries such as France and Germany be reluctant to bail out other countries in debt


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    hello Indy


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    (Original post by 95pc1)
    hello Indy


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    hello "pc"


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    Thoughts on this essay? I thought it was a tricky one to plan:

    1. Is fiscal austerity self-defeating in countries with a national debt crisis? Discuss
    · Austerity is an effort to reduce the budget deficit. It involves high taxes and cuts in government spending, in theory reducing budget deficits. However, fiscal austerity also has impacts on economic growth:
    1. Higher taxes reduces consumer spending
    2. Government spending cuts leads to lower AD; I.e: public sector pay freezes reduce consumer spending, and public sector job cuts leads to rising unemployment.
    3. Loss of confidence in economies associated with ‘austerity policies’ encourages high savings and less spending, might cause capital flight causing a sharp fall in wealth and exchange rates.
    · For example, during Greece’s national debt crisis, austerity measures introduced acted as a contrationary policy, furthering the recession.
    · If you pursue a deflationary fiscal policy (such as fiscal austerity), the impact will depend on:
    1. Monetary policy: Can interest rates be cut? Can you increase the supply of money?
    2. Exchange rate: Can you pursue competitive devaluations, making exports more attractive?
    3. Can rely on exporting goods to other trading partners who are experiencing economic growth?
    · Depends on the type of spending cuts, for example: Greece saw a rise in VAT, higher duties on demerit goods, and a cap on state pensions. As Greece is part of a single currency monetary union, it has no control over its interest rates and exchange rates are fixed, so austerity is likely to be deflationary, but not as deflationary as it would have been, should Greece have made public sector workers redundant.
    · Can the economy rely on the private sector taking the place of government spending? Some economists argue that cutting government spending may be beneficial as government spending ‘crowds out’ private sector spending (When government spending fails to increase overall AD because higher government spending causes a fall in private sector spending and investment as banks are forced to increase interest rates).
    · However, in severe recession such as the Greeks experienced, the private sector, with collapsing demand, is in no situation to increase investment, thus, cuts in government spending will further fail to increase private spending. This is known as the LIQUIDITY TRAP.
    · Conclusion In economies with a debt crisis, such as Greece, the economies are likely to be depressed and demand deficient problems will mean that fiscal austerity is more likely to be self-defeating, causing further government debt.
    · This can be backed with evidence from the Estonian economy , who were not in a state of debt crisis, and who also chose to implement severe austerity measures – which helped to stimulate a recovery.
    · If countries have no alternative ways of boosting economic growth, spending cuts can fail to reduce to the size of a budget deficit. Thus, the effect depends on other government policies and other macro-economic factors. High employment and stable prices may mean that sustained growth will surpass the amount of debt allowing a recovery and generating money for governments through taxation receipts.
    · Austerity policies are mainly successful are reducing budget deficits when the economy has alternative policies in place to provide an economic stimulus (i.e: monetary policy); but for countries such as Greece which are part of a single monetary union – this is difficult as they have little control over macroeconomic policies.
    · Thus, I do not believe that fiscal austerity is a good policy action for Greece as:
    1. Greece has seen persistently high recession, unemployment rates are very high, leading to persistent losses in output, making a balance of payments recovery very difficult.
    2. They have no recourse for monetary policy
    3. Austerity policies have already been linked to reduced business and consumer confidence.
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    (Original post by physicso)
    Thoughts on this essay? I thought it was a tricky one to plan:
    .
    It's a good plan, but I feel it's an essay incredibly unlikely to come up.
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    (Original post by ChoccyWoccy)
    It's a good plan, but I feel it's an essay incredibly unlikely to come up.

    Aha, yeah hopefully, was difficult to come up with idea's :s

    I'm so nervous for this exaaaaaam, i do actually quite like sustainability essays though. Which one do you think is most likely to come up?
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    (Original post by physicso)
    Aha, yeah hopefully, was difficult to come up with idea's :s

    I'm so nervous for this exaaaaaam, i do actually quite like sustainability essays though. Which one do you think is most likely to come up?
    I reckon something to do with sustainability and sustainable indicators development and economic growth


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    Do you think we need to know about the washington consensus and policies to promote economic development? Or will policies for sustainability be enough?
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    (Original post by indyb16)
    does anyone know the answer to this q, I have no idea how to go about answering it

    why would countries such as France and Germany be reluctant to bail out other countries in debt


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    - They will be spending money which they will not be getting back for a long time
    - It means that the countries being bailed out may get into even larger debt as they know they can rely on France or Germany to bail them out
    - May not agree the political structure and policies used within the country which needs bailing out

    But then again if they did bail them out Germany and France could set down conditions on the funds. This means that the country bailed out may have to spend the money in France or Germany and so in turn improving the economic growth of France and Germany...

    Not sure if this helped?
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    (Original post by boxr01)
    Do you think we need to know about the washington consensus and policies to promote economic development? Or will policies for sustainability be enough?
    Policies for sustainability will be adequate but further research into the Estonia Sustainable 21 will be very useful
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    Hi guys, I personally bought both the tutor 2u 'rapid revision handbook' and the 50page booklet based on topics on the case study. Cost my parents loads, if you want these both emailed to you for a fiver and have paypal, PM me and ill email you my paypal. When the fiver is received ill email it to you within an hour. Thanks
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    (Original post by ilovemeat)
    - They will be spending money which they will not be getting back for a long time
    - It means that the countries being bailed out may get into even larger debt as they know they can rely on France or Germany to bail them out
    - May not agree the political structure and policies used within the country which needs bailing out

    But then again if they did bail them out Germany and France could set down conditions on the funds. This means that the country bailed out may have to spend the money in France or Germany and so in turn improving the economic growth of France and Germany...

    Not sure if this helped?
    thanks, it did


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    If anyone could take a look at this I'd appreciate it, even if it is a kind of specific question:

    In the tutor2u toolkit it lists one 'risk' of Latvia joining the Euro in 2014 as Trade Diversion, where, due to the fact that three of Latvia's main trading partners are outside the Euro zone, there is a possibility of a switch of trade to higher cost countries (and all the possible negative implications that entails, inflation, reduced international competitiveness etc). But I'm struggling to see how that could be correct.

    Trade Diversion, as I understand it, happens due to the influence of the external tariffs of the customs union which the new or candidate country is joining. These new tariffs cause a switch of trade to less efficient producers, as the costs they impose on trade are greater than the gains Latvia gets from trading with the more efficient producers in her 'old' trading partners. However, Latvia, as an EU member, surely already has the common external EU tariffs against foreign trade? Latvia wouldn't see any 'new' tariffs against external trade due to joining the Euro, right? So why would there be trade diversion as a result of Latvia joining the euro, as opposed to joining the EU (where its quite possible to see trade diversion occurring)?

    Am I missing something or is the toolkit just incorrect?
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    Does anyone have any idea about what debt flows actually are and why they are good/bad? :lolwut:
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    (Original post by ChoccyWoccy)
    Does anyone have any idea about what debt flows actually are and why they are good/bad? :lolwut:
    Flows of borrowing from one country to another? Something like that, its not really a 'term' as such is it?

    Good; might help finance business expansion and investment/consumer spending in developing countries, especially if savings rates are low and the financial system in the developing country can't provide finance, or if wage rates are stagnating

    Bad; over-reliance, similar to FDI in that it can be suddenly withdrawn due to external shocks leading to big falls in domestic investment/consumption if economy is 'dependent' on it

    I just made those up though so don't quote me on it
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    (Original post by apt9)
    If anyone could take a look at this I'd appreciate it, even if it is a kind of specific question:

    In the tutor2u toolkit it lists one 'risk' of Latvia joining the Euro in 2014 as Trade Diversion, where, due to the fact that three of Latvia's main trading partners are outside the Euro zone, there is a possibility of a switch of trade to higher cost countries (and all the possible negative implications that entails, inflation, reduced international competitiveness etc). But I'm struggling to see how that could be correct.

    Trade Diversion, as I understand it, happens due to the influence of the external tariffs of the customs union which the new or candidate country is joining. These new tariffs cause a switch of trade to less efficient producers, as the costs they impose on trade are greater than the gains Latvia gets from trading with the more efficient producers in her 'old' trading partners. However, Latvia, as an EU member, surely already has the common external EU tariffs against foreign trade? Latvia wouldn't see any 'new' tariffs against external trade due to joining the Euro, right? So why would there be trade diversion as a result of Latvia joining the euro, as opposed to joining the EU (where its quite possible to see trade diversion occurring)?

    Am I missing something or is the toolkit just incorrect?
    dunno if this is just me being dopey but isn't it just that trading within the eurozone becomes easier due to price transparency and stuff, so it's not that external tariffs get higher right?
    so the trade diversion thing occurs but it's just that trading outside of the euro could be more difficult due to tariffs and a different currency but within the eurozone is way easier due to same currency and no tariffs, so on the diagram there's a larger benefit to society


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    (Original post by indyb16)
    dunno if this is just me being dopey but isn't it just that trading within the eurozone becomes easier due to price transparency and stuff, so it's not that external tariffs get higher right?
    so the trade diversion thing occurs but it's just that trading outside of the euro could be more difficult due to tariffs and a different currency but within the eurozone is way easier due to same currency and no tariffs, so on the diagram there's a larger benefit to society
    Yeah I think that would be trade diversion, i.e trade becomes less expensive within the Euro zone (due to the reduction in transaction costs + exchange rate uncertainty) so trade would be diverted to between Latvia and another Euro zone country, due to the fall in price, rather than between Latvia and a country outside the Euro zone. But it wouldn't have the negative effect of raising the price of the good that was originally being traded, which is the reason trade diversion can be a negative.

    Guess you could use that as a positive though, it's just it was used in the tutor2u thing as a negative impact of joining the Euro, implying that the net effect would be a rise in the price of the good being traded

    Ah well I probably won't use it now anyway, too easy to trip up over in an exam situation
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    That was lovely!
 
 
 
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