IB Economics: Macroeconomics Real World Examples
Terms in this set (31)
Singapore
- Recession/Trough: During the Great Financial Crisis, it experienced negative
growth of -13% in the 4thquarter of 2008, caused by a fall in demand for
Business Cycle
exports from US and Europe.
- Recovery/Boom: After the crisis, it recorded a 37% quarterly growth in the 1
stquarter of 2010, and overall 14% growth in 2010.
- The US has recently experienced a 0.7% income increase in the last 2
Circular Flow - Increased Consumer months of 2017, leading to a rapid increase in aggregate demand.
Expenditure - In May 2018, US house prices reportedly increased by 6.8%, resulting in a
growth rate of 3% for the year.
- President Bill Clinton used contractionary policy by raising the top income
Circular Flow - Decreased Consumer tax rate from 28% to 40% to curb over-inflation.
Expenditure - New Haven residents have recently experienced an 11% property tax hike,
which is likely to lower consumer confidence.
IB Economics: Macroeconomics Real World Examples
- Optimism recently slipped in Europe's five biggest economies, taking the
overall index to its lowest in six months. Indexes showed manufacturing and
services activity in the Eurozone is growing at its slowest pace in 14 months.
Circular Flow - Decreased Investment
- The Bank of Canada recently raised its interest rates to 1.25%, the first time it
has been over 1% in 9 years, as unemployment was nearing all-time lows,
raising fears of over-employment and thus over-inflation.
- Japan's interest rate is -0.1%, in order to incentivize consumption and
spending in its saving-oriented economy.
Circular Flow - Increased Investment
- Record low interest rates in Australia have fuelled developers to invest in
building new apartments and houses.
Circular Flow - Increased Government Singapore government's doubling of its MRT network from 180km to 360km
expenditure by 2030.
- In the United Kingdom, median income growth has lagged behind GDP per
capita since the early 1980s, which is largely the result of a growing income
inequality.
GDP Unreliability - A recent study conducted by the IMF finds that about 32% of work in
modern society belongs to the shadow economy.
- Eurostat estimates the US GDP would increase by 3% if the European
method of GDP calculation were instituted in the US.
IB Economics: Macroeconomics Real World Examples
- In 2016, Japan cut a benchmark interest rate below zero to stimulate the
economy, as volatile markets and slowing global growth threatened its efforts
to overcome deflation.
- After Brexit in July 2016, the UK conducted quantitative easing to lower
interest rates from 0.5% to 0.25%. This was to prevent the risk of recession, as
the fall in business confidence would reduce foreign investment.
Expansionary Monetary Policy - Finland's growth in 2015 was just 0.5%, which prompted the government to
reduce interest rates in order to boost export competitiveness and improve
productivity.
- The recession of 2008-2009 was very deep. The UK was hard hit by the
credit crunch and knock to the financial sector. The region had its the interest
rate cut to 0.5% and had £200bn of quantitative easing, though was still quite
slow to recover.
- In late 2017, the US lowered its highest income tax bracket rate from 39% to
37%.
Expansionary Fiscal Policy - The American Recovery and Reinvestment Act of 2009 was taken on in the
midst of the Recession, and totaled $831 billion. Most of this spending
targeted infrastructure, education and extension of unemployment benefits.
- In 2016, the Nigerian central bank raised its interest rate to 14% from 12%, as
the country struggles with high inflation and a collapsing currency.
Contractionary Monetary Policy
- Interest rates in the US were recently raised from 0.75% to 1% in order to
prevent high inflation, due to rising consumer and business confidence.
IB Economics: Macroeconomics Real World Examples
President Bill Clinton used contractionary policy by raising the top income tax
Contractionary Fiscal Policy
rate from 28% to 40% to curb over-inflation.
Donald Trump cut Corporate Taxes in the US from 35% to 21% near the end of
Outwards shift in SRAS
2017, which resulted in a growth of about 3.5% in 2018.
France recently approved a new law that implements a corporate tax rate of
Inwards shift in SRAS
up to 43%, which is significantly greater than the previous range of up to 33%.
- Singapore's 'SkillsFuture' initiative provides training programs for individuals
of any age in a vast number of domains. Those aged 25 and above get $500
initial credit to pay for skills courses, and over 285,000 citizens currently use
the program.
- China has invested in robots with an amount that is expected to exceed $30
billion by 2020. This means that its FOPs have become more efficient,
Interventionist Supply-Side Policies
improving its LRAS.
- Kenya is considered to have one of the most successful entrepreneurship
economies in Africa, as it creates government policies that favour the creation
of small and medium sized enterprises (SMEs). Examples of policies include
tax breaks for entrepreneurs who invest into their businesses, the creation of
industrial sheds and the issuing of international trade licenses.
IB Economics: Macroeconomics Real World Examples
- The NWC in Singapore encourages firms to tie annual wage increases for
workers to increases in their productivity.
- The Singapore government provides tax holidays (of up to 10 years) for
high-tech firms or headquarters operations to be set up in Singapore, loans
for capital investment, financial grants for innovation and R&D, as well as
grants for workers' training & upgrading.
Market-Based Supply-Side Policies - Sweden, Denmark and Norway have zero minimum wages. This has resulted
in lower levels of unemployment, as countries without a minimum wage have
an unemployment rate of 7.9%, while this rate is 11.8% in countries with one.
- Bharat Aluminium Company, initially a state-owned a company in India, was
privatized in 2005 by Vendata Resources.
- The Singaporean government sold Singtel (1992) and Singapore Power
(1995) to local private enterprises.
- The rise of digital photography resulted in Kodak, a film photography
company, going bankrupt. Many jobs were lost to this technological
advancement in a similar fashion.
Structural Unemployment
- Australia's history of assembling and building automobiles is coming to an
end, as nations like China and Germany are able to produce them for far
lower costs.
The Spanish recession in 2008 resulted in limited spending, resulting in a
Cyclical Unemployment
spiralling unemployment rate which soared to above 20% by 2010.
IB Economics: Macroeconomics Real World Examples
- There are 70,000 Christmas casual workers for Target, who would be left
without work after the Christmas period.
Seasonal Unemployment
- Ski instructors in Austria have had to endure unemployment during non-
snowing periods of time.
Qantas warned and then made redundant 5000 workers in 2014, causing them
Frictional Unemployment
to be between jobs as they looked for a new one.
During the Chinese Civil War, the increased military spending on equipment
Demand-pull inflation
and resources increased Aggregate Demand, so prices soared.
Hurricane Katrina, which ravaged Florida and Louisiana in 2005, destroyed oil
Cost-push inflation
refineries. The increased costs of producing oil caused gas prices to soar.
Greece experienced a government debt crisis starting in late 2009,
significantly reducing government expenditure and consumer/business
Deflation
confidence. This resulted in Greece experiencing deflation of up to 3% as
Aggregate Demand reduced.
IB Economics: Macroeconomics Real World Examples
- Japan: Despite consistently having deflationary percentages, consumption
has increased. Japan is one of the most innovative nations and its
Good vs Bad Deflation unemployment rate is under 4%.
- Greece: As a result of deflation, its GDP fell by nearly 6% in 2015, and
economic growth is still very slow.
The Singaporean government experienced a growth rate of 3.2% in 2018,
Advantages of Economic Growth
resulting in them promising to invest $3 billion into public healthcare.
Though China experienced steady economic growth at the start of the 21st
Disadvantages of Economic Growth century, it saw a 70% rise in coal consumption between 2000 and 2005,
resulting in the nation becoming one of the most polluted worldwide.
- Sweden has a Gini coefficient of 0.25, as it has a progressive tax scheme
where incomes under 20,000 Kroner are untaxed, though the highest bracket
Equitable Distribution of Income of earners pay over 50% in income taxes.
- The highest earners in Belgium pay up to 55% income tax, due to its
progressive direct tax scheme.
- Brazil has a Gini coefficient of 0.52, as it has just three different tax brackets -
as a result, it is largely proportional.
Non-equitable Distribution of Income
- Trinidad and Tobago has a proportional tax of 25%, which has led to its last-
recording Gini coefficient being 0.41.
IB Economics: Macroeconomics Real World Examples
- Singapore's Workfare Income Supplement provides individuals aged 35 and
above, with a gross monthly income of not more than $2,300, with payments
depending on their income level. For example, an individual with a monthly
Improving Distribution of Income
income of $1,200 is paid $4,000 per year.
- Australia's Age Pension scheme provides income support and access to a
range of concessions for those older than 65.
- Horizontal section: Greece (24% unemployment rate in 2015).
- Intermediate section: China (high growth and high inflation).
Keynesian Model - Parts of the Curve
- Vertical section: Singapore, UK (unemployment rate is roughly equal to
natural rate of unemployment).
Singapore is considered to be a Keynesian economy - for example, following
the financial crisis of 2009, it relied heavily on government spending. $10
Keynesian Economy billion was invested into worker training/development and $8 billion was
invested into businesses. This resulted in a V-shaped recovery - by September
2010, the unemployment rate was just 1.8%.
Hong Kong is considered to be a Neoclassical economy - it remains the
world's freest economy on the Economic Freedom Index. After the 2008
Neoclassical Economy Financial Crisis, the country had a growth of -2.5%. However, through
relatively little government intervention, the GDP growth rose to above 5% by
2010.
