IB Economics - Real World Examples

Terms in this set (27)

Chile became the third Andean nation in just over a month to raise interest
rates as a slump in local currencies pushed up inflation across the region. The
Contractionary Monetary Policy central bank indicated further increases will follow.

2015 - October

Australia's jobless rate remained steady at 6.2 per cent in September, despite
a small decrease in the actual number of people employed, according to the
Australian Bureau of Statistics.
Australia's Unemployment

The ABS said on Thursday the decrease of 5100 in the labour force was a
result of lower "male full-time and part-time employment and female full-time
employment, with the largest decrease in male full-time employment".

IB Economics - Real World Examples

 It seems like only yesterday that the biggest threat to the Australian economy
was slowing growth in China, by far our largest trading partner, and the
related decline in mining-related investment and commodity prices.

However, record low interest rates have fuelled robust demand from first
home-buyers and buy-to-let and buy-to-flip investors. This, in turn, has
encouraged developers to build new apartments and houses, and consumers
Aggregate Demand - Housing to spend on furniture and other household goods and services. The issue is
that demand for new and existing housing is slowing

This, in turn, may affect many of the businesses that are supposed to be
benefiting from record low interest rates.

With the commodity boom well and truly over, Australia can ill afford an
abrupt end to the housing boom.

IN a shock move, Westpac today said it was raising its variable mortgage
Aggregate Demand - Westpac
rates next month by 0.2 percentage points to 5.68 per cent.

IB Economics - Real World Examples

 WHILE global financial markets are in turmoil as investors continue to fret
about China's apparent economic slowdown, consumers in the country are
increasingly upbeat.

China's faltering industrial profitability and output have caused financial

market anxiety.

Aggregate Demand - Chinese consumers The Chinese economy remains a key source of concern for global investors.
Once again though, the surveyed opinions of China's consumers are showing
a steady improvement.

Urban Chinese consumers seems oblivious to the tirade of negativity that

surrounds China at the moment

THE US Federal Reserve has opted to keep rates on hold at the end of its
eagerly awaited September meeting.

Low inflation its major concern.

"Inflation is anticipated to remain near its recent low level in the near term"
central bankers said in a statement.

Monetary Policy - US
"But the committee expects inflation to rise gradually toward 2 per cent over
the medium term as the labour market improves further and the transitory
effects of declines in energy and import prices dissipate."

"The committee judged it appropriate to wait on further indicators... to bolster

its confidence that inflation would rise to 2 per cent over the medium-term.

IB Economics - Real World Examples

 "The collapse in equity trading activity will also have produced a sizeable
drag in financial-sector output growth last month.

China's GDP
"But the desire to keep growth close to the annual 'about 7 per cent' target
means that growth probably won't be shown to have slowed by much,"

IB Economics - Real World Examples

 - Australia's 90-year history of assembling and building automobiles is coming
to an end.

- Now a debate is raging about whether the government should once again
stretch its financial assistance - which has already run to billions of dollars in
the past two decades - to the broader industry as they struggle for survival in
the void left behind.

- But the opposition, industry experts and academics argue the funding
should run until 2020/21, its original legislated end, and be broadened to give
businesses within the automotive supply chain a chance to diversify.

- The Andrews' Labor government in Victoria - where about 55 per cent of

Australia's automotive workers live - is concerned.

- MNC Bosch is looking to close down "The challenge in a multinational is

Unemployment/Trade Agreements - Australia's that you are not just competing with your typical external competitors. You're
Car Industry competing for capital investment from a parent who can invest pretty much
anywhere in the world. Australia is not at the front of mind for the group when
they consider where to make investments."

- Government estimates the closures will trigger a net loss of just under
200,000 jobs, with about $29 billion wiped off Australia's gross domestic
product - a gauge for the economy's health.

BUT

- Treasurer Scott Morrison said international trade agreements, including the

ones Australia has signed with Korea, Japan and China, as well as the 12 nation
Trans-Pacific Partnership would help fuel Australia's next wave of economic
prosperity.

- A $155 million 'growth fund', which was announced in May 2014, was helping

IB Economics - Real World Examples automotive workers find new jobs.

 Beef is being hailed as the new iron ore, as Indonesia and the rapidly
expanding Chinese market drive up demand for our cattle.

And that demand — coupled with favourable grazing conditions — is turning

Top End livestock stations into multi-million dollar businesses.

Australian Exports - Beef

It's even been tipped to be as big as the minerals boom.

---

Australians generally consider Brahman beef too tough to eat — as Wooley

points out, any attempt to barbecue it turns it as tough as leather in moments.

But Asian consumers love it for slow cooking.

IB Economics - Real World Examples

 Australia's wine exports have grown at their fastest rate since late 2007 as the
twin forces of a falling Australian dollar and growing demand from China
bring more optimism to the $4 billion wine industry.

Export sales to China in the 12 months ended September 30 soared by 47 per

cent to $313 million, making it Australia's third-largest export destination by
value behind the United States and United Kingdom.

Australia's Exports - Wine

The Australian dollar has fallen more than 20 per cent in the past 15 months,
and now appeared to be holding around the low US70c mark and this was
important. (more certainty)

But Australia's exports into that country are still at less than a third of those
from France.

IB Economics - Real World Examples

 AS SOUTH Australia's economy continues to struggle, business leaders are
urging the government to act in order to provide a much needed jump-start
to the state's jobs sector.

Organisations urging the government to sell off SA Water in order to avoid a

"major economic depression"

Ways to increase employment - SA

SA Water contributed $300 million a year to the state's economy but a sell-off
would add significantly more value.

But SA Treasurer Tom Koutsantonis is not a supporter of the idea and said
"unlike the Liberal Party" he would not entertain the idea of selling off SA
Water to an interstate or overseas monopoly.

IB Economics - Real World Examples

 Singapore's research & development (R&D) efforts have paid off with startups
more than doubling in the last decade from 24,000 in 2005 to 55,000 last
year.

Among other R&D efforts, Mr Lee (PM) added that the Agency for Science,
Technology and Research (A*Star) has catalysed more than $1 billion
investments.

These R&D efforts have also led to improvements in the daily lives of
R&D in Singapore/Sustainability/Improvements
Singaporeans, such as ongoing research projects studying how urban design
in the standards of living
can reduce urban heat or the Smart Nation programme which will see how
technology can be applied in the areas of transportation, healthcare and
education.

This will enable an integration of all the capabilities needed to support the
future of manufacturing efforts.

Self-driving vehicles, if developed successfully, could solve commute

problems and ease congestion on the roads.

IB Economics - Real World Examples

 Double edge sword, positive effects may occur, but negative consequences
loom large.

1. Singapore's exports become cheaper, which can serve to boost demand

2. But Singapore's imports simultaneously become more expensive, which

means higher prices for importers.

3. Singapore imports almost everything it uses, raw materials become more

expensive.

4. Higher imported inflation else eats into household incomes, which in turn
impinges on domestic demand. Ultimately, that adversely affects growth.

The consequences of weakening the Singapore 5. Because interest rates rise as expectations of a weaker Singapore dollar
dollar increase businesses and households take a hit from higher borrowing costs.

FURTHERMORE, a weaker Singapore dollar may not provide must boost to

exports either, with other countries devaluing their currencies aggressively,
Singapore's exports still seem expensive, at least comparatively.

THEREFORE, growth should come from more hard-earned ways

- Economic restructuring

- Technological advancements

- Higher productivity

IB Economics - Real World Examples

 Malaysia's ringgit fell to a one-week low on Monday (Oct 19) ahead of Friday's
budget as investors focus on what measures the government will take to
shore up the economy amid a collapse in commodities and slowing global
growth.

"The expectations are a bit high about whether there's a macro policy mix to
help support the economy," "There's a need to support the economy and that
Malaysia's Economy may have an impact on the budget deficit."

THIS COULD BE DUE TO PALM OIL:

Malaysia is Asia's only major net oil exporter and is also the world's second-
biggest producer of palm oil, which despite recovering some ground from a
2015 low in August is still down 6 per cent from this year's peak in September.
The government derives about 22 per cent of its income from energy-related
sources.

Japan's economy was expected to continue recovering moderately even

though the slowdown in emerging markets was weighing on exports and
output.

Japan's Economy
The BOJ has kept monetary policy steady since expanding its massive
stimulus programme in October last year. With inflation having ground to a
halt on slumping oil prices, the central bank remains under pressure to ease
again ahead of a rate review next week.

IB Economics - Real World Examples

 In Australia, hangovers are causing 11.5 million "sick days" a year at a cost of $3
billion to the Australian economy, recent research suggests.

The consequences of hangovers The American cost estimate includes spending on health care as well as the
economic toll of lost productivity, car crashes, crime, and deaths attributable
to excessive alcohol consumption.

IB Economics - Real World Examples

 This friendship is a visionary and strategic choice that fully meets Britain's own
long-term interest.

The Chinese economy is slowing down and it is changing its nature from an
investment-driven growth economy to an economy that has to look to invest
in other places," he said. "Chinese businesses are very eager to invest in other
countries and some of the best export products that China has to offer are to
do with infrastructure, high-speed trains, energy things like that and these are
exactly the things that the UK needs.

As well as securing billions of pounds of Chinese investment, Britain hopes to

Britain and China's relationship - trade advance efforts to turn London into a key trading centre for China's currency,
the renminbi, and to boost trade with the world's second largest economy.

During a tour of China last month, chancellor George Osborne unveiled plans
to make it Britain's second biggest trade partner by 2025.

However there are some concerns about China's human rights' issues.

Nevertheless, it's a risky policy but it is certainly one that in terms of trade
relations could be very beneficial

IB Economics - Real World Examples

 About half of the 1.6bn tonnes of steel made globally comes from China: firms
operating in the UK just cannot compete

In the past 18 months, China has flooded the market with cheap, subsidised
steel as its economic growth has slowed. Beijing wants to grab whatever
foreign cash it can on global markets by selling its products at a knockdown
rate.

Director of the industry body UK Steel, said: "Chinese steelmakers are fully
British steel left weak by China subsidised by the Chinese government and their regions."

Ministers insist they are powerless to hold back the rising tide of Chinese
metal, noting that the government is bound by EU rules which prevent the
state intervening in such matters.

Tata confirmed on Tuesday that it is cutting almost 1,200 jobs as part of a

radical shakeup of its long products division, which makes steel for the rail
and construction sectors.

IB Economics - Real World Examples

 One key issue in the debate about whether the UK should remain in or leave
the EU is how far the UK is currently marginalised in Europe. As Nigel Lawson
put it in the Times in May 2013: "While never 'at the heart of Europe' ... we are
now becoming increasingly marginalised as we are doomed to being
consistently outvoted by the eurozone bloc."

Overall, using the best available data on EU decision-making, there is strong

Is the UK marginalised in the EU?
evidence that on average the UK has not been marginalised in the making of
EU laws. The UK government has been closer to final policy outcomes than
most other governments. This is also true for policy issues the UK government
has been particularly concerned about, although there is some evidence that
on certain policy issues, including internal market and trade, the UK has been
less content with final EU decisions.

IB Economics - Real World Examples

 When gas prices fall, Americans reliably do two things that don't make much
sense.

They spend more of the windfall on gasoline than they would if the money
came from somewhere else.

And they don't just buy more gasoline. They switch from regular gas to high-
octane.

Americans, in short, have not been behaving like the characters in economics
textbooks.

There is, however, a pretty good explanation for this kind of pattern.

When Gas Becomes Cheaper, Americans Buy Researchers have found that people treat money as earmarked for particular

More Expensive Gas kinds of spending, a tendency behavioral economists call "mental
accounting." If someone is buying rounds at the neighborhood bar, people
tend to treat the money they didn't spend as "beer money," and sooner or
later they tend to spend it disproportionately on beer. As a result, they end up
drinking more beer than they had originally intended.

Professors Hastings and Shapiro showed that households adjusted their gas
consumption much more sharply in response to changes in gas prices than in
response to equivalent changes in overall income.

Moreover, this behavior was prevalent: 61 percent of the households made at

IB Economics - Real World Examples least one irrational gas purchase. People "treat changes in gasoline prices as
 equivalent to very large changes in income when deciding which grade of
gasoline to purchase," they wrote.

America's affection for regular soda, as I reported this month, is waning.

It's true that as Americans come to crave more beverage variety, new types of
drinks are becoming more popular. Those growing categories include some
with a lot of sugar, like energy drinks, sports drinks and ready-to-drink coffee
drinks. But sales of those products have not grown enough to compensate
for the large declines in soda, a much more popular category.

Sales data at the household level also show declines in calories from
Energy Drinks Are Popular, but Not Enough to
beverages. Most of the change comes from soda and fruit drinks.

Replace Soda

It's possible that energy and sports drinks could continue to grow and one
day replace all the soda that people stopped drinking. That's part of the
reason the big beverage companies are investing so heavily in the new
categories. But, for now, those new drink types are small enough that the
decline in soda has real meaning for many people's diets. And the industry
has an incentive not to oversell its most sugary products: The biggest
beverage companies have pledged to reduce overall calories in the products
they sell by 20 percent in the next 10 years.

IB Economics - Real World Examples

 Pity the bolívar, Venezuela's currency, named after its independence hero,
Simón Bolívar. Even some thieves do not want it anymore.

The eagerness to dump bolívars or avoid them completely shows the extent
to which Venezuelans have lost faith in their economy and in the ability of
their government to find a way out of the mess.

A year ago, $1 bought about 100 bolívars on the black market. These days, it
often fetches more than 700 bolívars, a sign of how thoroughly domestic
confidence in the economy has crashed.

The International Monetary Fund has predicted that inflation in Venezuela will
Few in Venezuela Want Bolívars, but No One hit 159 percent this year, and that the economy will shrink 10 percent, the
Can Spare a Dime worst projected performance in the world.

Even as the country's income has shrunk with the collapsing price of oil —
Venezuela's only significant export — and the black market for dollars has
soared, the government has insisted on keeping the country's principal
exchange rate frozen at 6.3 bolívars to the dollar.

Mr. Maduro blames an "economic war" waged by his enemies, foreign and
domestic, for the problems. But most economists say the problems are
caused by the fall in oil prices and the government's policies, including strict
controls on prices and foreign exchange for imports.

IB Economics - Real World Examples Today, the bolívar is anything but strong.
 "Right now, the wealthy pay too little," Hillary Rodham Clinton said at this
week's Democratic debate in Las Vegas, "and the middle class pays too
much."

Raising their total tax burden to, say, 40 percent would generate about $157
billion in revenue the first year. Increasing it to 45 percent brings in a
whopping $276 billion. Even taking account of state and local taxes, the
average household in this group would still take home at least $1 million a
What Could Raising Taxes on the 1% Do? year.

Surprising Amounts

That would more than cover, for example, the estimated $47 billion cost of
eliminating undergraduate tuition at all the country's four-year public colleges
and universities, as Senator Bernie Sanders has proposed, or Mrs. Clinton's
cheaper plan for a debt-free college degree, with money left over to help
fund universal prekindergarten.

"Most economists today would agree that raising taxes modestly would bring
in more revenue"

IB Economics - Real World Examples

 Asian exporters starting to benefit from US Christmas shopping demand,
helped by iPhone.

It's never too early to start your Christmas shopping, and Asian nations are
starting to benefit. Exports from the region are recovering as demand from
Asian exporters the US and other developed economies picks up.

Apple Inc's iPhone 6S release in September gave Taiwan's exports a

significant boost as its communication products expanded 37.3 percent
month-on-month.

As China weakens, recession stalks North Asia.

As China undergoes a painful rebalancing of an economy that accounts for 16

percent of global GDP - it has experiences its weakest growth rate since the
Asian economies leading to a recession? global financial crisis.

Without a doubt, as long as China remains in a very soft spot ... it's natural that
North Asia, which is very highly oriented to China's market, whether directly or
as a conduit, also takes a knock

Australia's CPI and wage growth Wage growth is higher that CPI (note that CPI is low)

IB Economics - Real World Examples

 Today's inflation numbers were so low, they took the market by surprise.

They've also put more pressure on the Reserve Bank to cut interest rates
when it meets next week on Melbourne Cup Day.

Why is Australia's CPI low?

Wages are weak, so most domestic costs are subdued, and there's some
pressure coming from the lower exchange rate, so everyone was braced for
underlying inflation to be modest.