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Summary All the Macro essays for Edexcel Economics
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All the possible Macro essays for Edexcel Economics. Gives you a detailed plan for each essay and integrates diagrams into the answers.
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2017Since the global financial crisis of 2008 there have been over 5 700 increases in tariffs, quotas and
administrative controls on international trade.
Evaluate the likely effects of an increase in protectionism on the economy of a developing country
of your choice.
Reduction in the Volume of Imports
For instance, in 2018 the US imposed a new round of tariffs on $16bn worth of Chinese goods, with
Trump imposing a 25% tariff on 818 products such as steel.
This as a result would lead to higher prices on
consumers, with there being a clear shift from P2 to
P3.
This is shown in the diagram below. Imports before
the tariff were Q3Q2 but after the tariff, they fell to
Q5Q4.
Ceteris paribus, a fall in the value of imports should
lead to an improved trade balance, and therefore an
improved current account.
This means that the government can use its export revenue to develop productivity and improve
infrastructure.
Trump attempting to provide a nurturing environment for infant industries. The steel industry in
the US directly employed just 140,000 people in 2018 - imposition of tariffs made domestic
producer more attractive to the market, encouraging employment in the sector.
As a result, the infant industries are protected from international markets and are able to develop in
a stable manner, benefitting from economies of scale.
HOWEVER- negative impacts consumer
domestic producers benefiting from the lack of competition, consumers are faced with a limited
choice, resulting in higher prices for goods and services
consumers may have to settle for potentially poor quality goods due to the lack of choice.
consumer surplus will decrease, leading to deadweight welfare loss.
The higher prices for consumer may transfer to global markets, likely increasing inflation and
thus negatively affecting the global economy.
domestic firms may also be hurt financially since they may have to purchase parts to make their
products and then pass the increased cost on to the consumer.
countries are at risk of cost-push inflation because the cost of imported raw and semi-finished
materials rises. - detrimental impact on the final competitiveness.
HOWEVER - this also depends on the price elasticity of demand of goods and services.
If demand is price inelastic, then when import prices go up, demand for them falls less than
proportionally and therefore, spending on imports may rise.
1
, The depreciation in the exchange rate will only improve the current account deficit if PEDX +
PEDM > 1. This is known as the Marshall-Lerner condition.
issues associated with uncertainty surrounding the growth of infant industries and how long will
it take for them to mature
protection of an infant industry may actually end up costing a government significant amount of
money and financial resources in order to protect its infant industry
LARGER TAX REVENUE
could be useful to improve public services or to implement
other policies such as supply-side policies which can lead to
improvements in LRAS,
quality and capacity of the US economy increase and that
US exports become more competitive in the long run
naturally.
US government may be able to use their tax revenue in
order to invest in firms, which should further encourage
growth and development, with this being directly in the
diagram above, leading to LRAS shifting outwards to LRAS2.
result in growing productivity and output within the economy, making US goods more desirable
and cheaper in the international market.
HOWEVER- retaliation and trade wars
A trade war will ultimately mean increased import costs as manufacturers and producers must
pay more for equipment, commodities, and intermediate products from foreign markets.
affect a nation’s real GDP growth.
alongside this lower global trade growth, global GDP growth has fallen by 1 percentage point,
revealing how the imposition of tariffs has effects on the global economy.
If all countries implemented protectionism, countries would not be able to specialise easily
because specialisation and comparative advantage requires free trade.
lead to the domestic economy being damaged as well as the total world output. This could be
especially damaging on goods that the US is dependent on, where demand is quite inelastic.
instability between the two large world powers such as China and US may affect business
confidence, with four-quarter business investment growth across G7 countries (excluding the
UK) has slowed from around 6% to less than 2% over the past year.
Global oil prices fell from a 2008 peak of $147 a barrel to $27 in 2016. Evaluate the likely
macroeconomic consequences of a significant fall in global oil prices.
Reduction in the cost of living for consumers
Oil prices often correlate with the rate of inflation as it is
such an important input into many products (transport,
plastics, energy prices, etc)
2
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