Macroeconomic Advance

1. State two ways a government can encourage investment by businesses.

• 1. Tax incentives for capital investment

  Investment grants/subsidies
  
  

• a

• c

• c

1. Explain one potential downside of using interest rate cuts to boost growth.

EX: Lower interest rates make borrowing cheaper for individuals and businesses. This can incentivize increased investment in assets like housing, stocks, and other financial instruments. While this can initially stimulate economic activity and create a sense of wealth, if this investment isn't based on solid underlying economic fundamentals (like strong earnings growth or genuine demand), it can inflate asset prices to unsustainable levels.

• 1. May lead to higher inflation or asset bubbles

  Reduced returns on savings
  
  

• a

• a

• a

1. Explain one economic consequence of a country running a persistent current account surplus.

• 1. Can lead to currency appreciation, making exports less competitive
     (Look for understanding of balance and trade-offs)

• a

• a

• a

explain one reason why a government might subsidise education.

• Positive externalities, better skilled workforce, long-term growth

• a

State two monetary policy measures a government could use to reduce inflation.

• -Lower interest rates, selling government bonds

• a

• a

Explain one benefit of a budget surplus for an economy.

EX: When a government's revenue exceeds its expenditures, the surplus funds can be used to pay down outstanding government debt.

• : Reduces borrowing costs or allows investment

• a

Explain one economic consequence of a rise in the national minimum wage.

Ex:When the minimum wage increases, employers are required to pay a higher hourly rate to their lowest-paid workers. This directly increases their payroll expenses.Businesses may respond to these higher costs in several ways, leading to further economic consequences

• May increase unemployment or reduce profits

• a

Explain one reason why a country may have a persistent current account deficit.

EX:A current account deficit occurs when a country's total imports of goods, services, and transfers exceed its total exports. If ¹ a country consistently finds that its domestically produced goods and services are less attractive to foreign buyers compared to foreign-made alternatives, this can lead to a long-term imbalance where imports continuously outweigh exports

• Weak exchange rate or poor competitiveness

• aa

Define the term ‘protectionism’.

• Protectionism – use of tariffs, quotas or subsidies to restrict imports

• a

• a

Define the term "foreign direct investment."

EX: A prominent example of Foreign Direct Investment (FDI) in Vietnam is the Samsung Electronics Vietnam (SEV) complex in Thai Nguyen and Bac Ninh provinces.  

Details of the Samsung FDI:

• Scale of Investment: Samsung has invested billions of US dollars in Vietnam, making it one of the largest foreign investors in the country. By some estimates, their total investment exceeds $17 billion USD.  

• Nature of Investment: This FDI involves the establishment of large-scale manufacturing facilities producing smartphones, tablets, and other electronic components. These factories are key parts of Samsung's global supply chain.  

• Impact on Vietnam:

  • Job Creation: SEV employs tens of thousands of Vietnamese workers, significantly contributing to local employment

• FDI Definition:

  Investment from a foreign firm into a domestic company or infrastructure with lasting interest/control

• a

• a