consumer equilibrium:

1.equi-marginal principle
2. budget line is tangential
to ic curve
Assumptions
 ASSUuPlious :

cousumers rank tmeir wats

cousu meus
-

beuave in a rationa way

-
utilihy
ts thme only tactor determine consmse r ' s want

曰
 B . & IC , , B 2 1 B
3 11 B 2 & cnts IC , E 2

⼩
」
, IL 0 E 3
E 。
2

PxD -

,
substitute gooal xumtuY

p disposabyle income , attordabie

⼩
t x l e ss
Gilten sood : 0 .

g .
1 mxury good , essentian food
友
umen price tor staple tood Suas
For
poon tamilies ,

as hile aual orheat tlour wises ,

thky temal to bmy

to toumhure roncrease
Umore
prevemk
.

了
limitations of Ic :

cousumers mornally nave wmore choizes tman two .

it to be coumsmmers
many use iuupossible inditteeme as
-

may wank tmein wamts

Mot
sonsuners may aut mationlly s
aads ,
-

adiscomnts … 3
comomin eHiciemcte proolnotime etticieumtt alkolative etHiviencrl
 loWes 去 AE

Price =
mawg incd cost

丈
economic efficiency in a
competitive market

E
reduse
Pareto
inetiiamcy
GD

innovation ,
reseanch & dewelopment ,

n e re and u m o re eHicienhproanmchiom

methoads will coutvisute to ChyMGmic

eHrviemcy
Forms of market failure
V
( over -

production )
 Luuder -

proauctiom 了

nnaer caused MEB

phoductiom sy
,

-
-

MSC <
MBC

-
ovew -

procluction
isrepreseu去Eal
b QQ
ψ 、

ove r
- ro
-

Eaused
Gy MEE

← lep artuclontpmt
Optimmum
output
 Cousuumptiom
over
comsumptrom )
-

s uuder
-

uuker -

consuption causel
y MEB

MSB = MGB + ( MEB ,

Oreb
consmmption
-

caustd by MEL

MGB <
MPB
 ^∴
a
…
…
吧e
a
…
>
… …
…

Lov
( ite /

iusnramu
5

tmat
peopre
to to n k l
m o re risk
williong
are
isoquaont
-

similer to indittevenve Cuv 些

-
ditHevent Colusimatious of capital

aud lasomr thant gilve tlme saume

lewes ot output

casital
八

7 labour
oomt
些
upmt

% ooutpm⼠ < % oi 以 Ruh

Mcx [ TR -
T []
Short-run optimum output

IATC )
M

L 及 TCCML )
Optimum allocation of factors of
production corresponding to
their marginal product

% ↑ omtput 3 % ↑ iuput

% ↑ outpm { < oDiuBut

ISOLOST :

similen t o
bumdget line

factors ot puecuuctron
-

camne

bougut with tme same cost

caaitai

lGbour
 以 est combination of E 0 P
。

' . Rita
\

ISOQW 仔 N
5
ISOLOS

labour

Limitations of isocost and isoquant models

 Doptimonm
SR
wutRut in

② mim .
Ac

in LR

Types of internal EOS

 Types of external EOS
。

③
②

禹
LosttoradY

Ben good

②
i > 0
gisticscosts
②
③↑ IT System

-
Q4 Rerts tena 丈

to 的
e
move

Prmonuctive
[

t
-
easier

borwowmonet
Factors cause dos
 MR > MC /
w
MP >

MRCSuC /MPco
 to
way

calculate *
coucentwation
ratio

丈
 品 arket
s
im

protit
supennommani competitie
An a
errentiy
凹

tioms
to mamx
.production
,

⼩ ML = MR seLause tmem
O
produse at
⼼ P :

O proluction
'

it s vumRossilsle to konP usy ,

wWen Pattrl , the tivum cam

NoT t oprocduce
aHone amymore
8

shut chown .
 Brodutehs
cam use soty price
anad wom
-Bvice

couRetihion

ssetumeren
puice competition
n
oligopolist awoulalunh work
 * Suuperuormall i s nealuced
IREVENEcR
; butt u e maulet
COs is seiny .

imelticient

"
morumalprofit
suuper
ATE
八

%1

!
么
,
; optiummum

; max
,

MR D☆
= A
…

→
,
ML =
MR

OUIPUT
÷ Price
去 ion
compet
olists
oligo 13
betueen
mot urk
do
 -

tirms ave mot lichls to 3 otlnewuise

cousumers thill move to othmer procluncers

tinmns would meluce

-

mot either
price
Ψ lustic PED
Belcause other tiron reduce tbnein
λ hmay
Pviues too 1
orwescosolinghy

PED
inelasti
.

」
,

longas
a s kML
shmiths
within Chh ,
price does

NoT
change
,

prive wigidity

BRISONER DILEMMA OF OLIGODOLISTS

B rechuces Brises
A 绍
Pvile Prices

3000
RA :

仔 reanuces R =
RB = 3000

Pvice 任济 = 1000

RA = 1000
Avises
RA ⼆追 B - 1500
Price ( RB = 3000

non-price competition
 tiumms tollouw

tme price

henaher so tmat

they 的 Quaix

cus a single

lanwge selner

'

antel livenits

outBmt amd

( Pvile
⼆乃
 lower cousumer surplus s in
mismen prick

monopoly )

uigher proaduucer surplus

0 reaal ueigut 10 ss
-

undesired monopoly
desired monopoly
migmen Price

l owe r ouhput

ineHiciemcy
 diteveures betwehu pertetly couhes tasle & Gompetitive

goucls ame ichentilal in

pertertly comle hitine marlcet

tew s e l l e rs tm coonta st abhe market

-

tuere u n ay se oa pen .

in pertertly compotit
ice
wmarkee
proancers a can
only be
-

talcers
Brive
 Reasons of the existence of small firms

qlause
⼤的

are
" )
ae

tunet uvp nurinen

-

iewean
twteesereule

Reasons for growth

prochonctive
10

Capavity

mevsevs
&
talaromers
 hmoay seek
fo r max weulmme
ageut : vmamaager
T , ,

primciple : sharemoloher ,

seelk ton maax B

. roti Ʃ

Phoblemarises
 mimiom
isins loss

reasons for not max. profit

 MR = O

ompt
—
0 … …

ARAE
*

mamagers
Lilcelt
ave
Stec
比

mrt
,

tor
revenne revemsQ whakidhnismtion

蕊
sales maxiumisation

仙c
仔 TL

U
- — ATL = 仔R c nor mal
Proti Ʃ
3

(
! B = AF

Q
Price competition
discomwase
b protit to

^ mem eutvants

nesw firlens lan

very low price trore
but @ xit
的 ot survine

*
usecd in a collusion
 : MPCtMEC

* IMEc = tax

Ways to reduce npe

saenitici ② PEB
valwe
Sawne ;

vanorem
aoh
7
oohion
prol
same

Limitations of tax
① havd to estimate
 Property right owned by residents(third party)

Deregulation

tradable permits whih tirms cnsell

Property right owned by polluting firms

←
tirwns
benanuse
deriiane

"
aiit
can
eaneproaurtiou
☆ rmot
 ⑤

⑤
① over
To reauce
ousumption
-

① Q

② new agml .

should be at

i n E o ro h e r t o
produmae
at Q ,

③ moe
MSC to 1 nsLttax

⼆ D

=
LMPI 3 -

MEC

此
 Subsidy
八 -

MEB

subsidy
MEB
=

/,
'
/
 ③

⼆ MPB + MEB
,

*
 EQUITY

EQUALITY
 Limitation
of mean
tested
benefit

pay tax it wook

“

lower inconnethan

—
releiving
semetits

[ limitation

世
opportonmity
Los 七
 iwmcome
%

each monsehold
Tpanl
25 tcx ,

receive Geneti Ʃ uR to $ 4000

I ttax nousehond =$
paid bny
-

tue 3000 ,

tax
they can re re i ve tue aliteaane bet ween

and benetit re c e i ve $ 4000 -

$ 3000 =
$ 1000

Other ways ofvecdistributing income

progressive adinect
① Lax
SMTR
Tax 八
TT

AT 只

:
I

[ limitatiom ]

3 Ereate disinentivd to Be oupolyedbecoause low - income wray Meed to pay tax .

( BowerEr{ tiap )

3
⼩ afticiendybecausecdout waut Promotion , otheravise n e e d t t
Bap more tax ,

mot pay illegally

3 tax evasion & avoidancepay less unaher legal seudingof rumles

② Subsidy

③ price stabilisation

-
max .

d mim .
price

我
supply -
siohe policy to uable
peopie t o b e m o re employable

⑤ tishal
policy to reduce cyclical policy

owever , theve m ay be gov .

tailure due to :

mis
salcusaation ot
-

tmultiplier

tiume
lang
-

Bolitical benetit
-

pressure groups and

coruption
 MRP : m 叫
argimal Product x
price

*
ComEribution = 1 MRP -

Wagerahe

In l abour market , when KML = MRP

5

Profit maximisation
 ①

assumptions of firms
②

Factors determine demand for labour

n a te
⼀ detarbmineal by MRP
-

wage ,

produnctivit y
- '

- hemand of Procduct
 Wase rate ↑

Cose
production ↑
of

1B for lasour D

LGbomr 红
ppy

) inalividual

Lage
⼀

-
wouk & leisuve sanlance

incoume tax vate

3 tirom J
inaustry Lelasticity 3

skils requined

wageimotmersoccuupatioms
-

3 eEomomy

>
firm

①
wwww
 tvade oH Point
-

①
⼀
⼀
②

of laasoomm
suRphf
imelastic

labon
ot
supply
.
e asti
 popusakiomj
of
nchume
For an economy str

pBlt

For a firm
→ etected 以
* !

schoolleavingage
retineuseust
age ;

structuwe ot ppit , mouttary

Mone
-

→
,

mometary
Features of working
wase =
MRB

willingmess a
wase vate
 Fantors deterumine wage in

iupertert umarke 去

trade lmmiou

govermelnt s wnim
. & rax wage 3

mouoBsony
_

a
single or a domimaont bmyqn

aims of trade unions

 1 imitation

wesotialed
wniors
eraoe
晶
w
←
 eGmil . MC = MRP

mouopsony ,

vovided
'
7
nage
momopsonist
y
 Factors cause wage differential
between occupations:
Bargaining strength; different skills
and edu required; skills of labour;
gender; working hour; gov policy

Earning=transfer
earning+economic
rent
dtreaning
Deau

reamined
>

&
wag
D
 imelanstio
pertertlf

elastic
pentertly
ospeuaig
OGBP

s no inter nantioual traale f no

gov

muitiplier =
前ps =
和pc

mpl
: 器 : 1
-

mps

Equilibrium is achieved when:

Aggregate expenditure=output(c+i=y);
Injections=withdrawals(I=s)

① Elosed eco ulo sov

:
mps
和
pc
φ
quil : ① EtI =
Y ② I = s

③ closed tco ul gou

↓
m
aggnegate expenditue = CPI + G + 1 x
-

n }

↓ 」
{ ①<+ I
qmil : +
G[ ② I + G = StT
ww Gor opem ecomomy

③ open eco w /
gov

mnttmpm
upst

equil :
①+ I + [G+ { λ -

µ ] } ② I+ G +λ= S + T +☆
 C+I+g=y;
I+g=s+t

k wmr t :
mangima rate of t a x :

C+I+g+(x-m)=y;
S+t+m=I+g+x

1
=
apc
-

savins :
diHevence causead by iodlonmeleve
ditteweut 1 :

aps 命
mps
rapl 器 =

aps wmps tor t h e r i c t h

& s
the
Poor

cousmmption :

apl =
[ =| -

aps mpr
: ☆

faxation

art =
弄 mrt : 毙

iumports

ar m
= 哥 mpm
: 器
*

1
aps
= -

入
 Ta of $ 500 m x 2 -

5 :
vm
125
$

Lep any point on the line ,

aggresate expenditure =
money GDP
 .

cousmamphion tuuction
G :
Guntonomons comsulmptiom

[
'
c = atb {

b . 队
m

savins turnction

adissaving
Ta
: automomous
= 'Y
s

- a ts

s :
mDS

be calculateoad
aps ,

apl can all

investmernt

determivnatious

- ^(

O □

inperest vate

七 tch

COS 乜
-

xpectations

oliay
⼀
 IXOY
→
% ↑ GBP C
%↑I

alceserator CorHicieut :
}

gor coustricsutes to AD alurions um

ecomomil adowutarn
?
.

] ①

elom ,

P proviale
β mealtucame
-

L
f
adepeends ou stromuture of pp ( t ,

moe ean , healthcare umeedead ,

↑ G

④ - ple pay tax

①
, T
more pe

price of poaluuts vw ! culi the

I
conntry

Guality ot products

exchaumge
-

rate

inbomes
-

oant homme and anyroad

*
hamand ef leecds output
 的Gp

infhntiomary
^

↓ cuts G to shitt eqm + 1

gor

,
owtpm← to X ,

ermpionymennt
full

owepntuypotentias
Rubartaal
…
去

output gap
; Posi tive

rethatiomawy gGP
9

⼼去Rut "
enployranrt
0 In
{ ucal ot
ㄟ
GL ,
Gpp

; megatine
outpuk
gap

AE
3

^(

ECY

.
 ouctuanl Growth : SR ;
outputtj mowamesti v n side
PPE

poteontial gwouth : LR ; produskine campacity shith

0 ; ppL
'

C位 R 个

shirt -
rum eEo .

Growth
↑

^
Both actual and potential growth
 “
LRAS LAD
Yte
-
,
( poteutial )

SEAS IAB o ,Y
0

Lantaal )

gcp
ontput

ronegative
…
 运

GD. tac r a t e ⼩

6AS
smouks
positine
⑦
gap

wesctieontput

,
" 1111
gap
output negativne
smoalcs

positim

* caused By fluctuation of AD & AS

CAD

gov ' adjust AD L by nemand - siade policiies

to wise and nedne

GDP

tisial policy : gov speuadimg

I , tax

eometary Pol iny

: interest rate , 4 change rate
,
money suppny
 I welue
negatine output gap

sDactumntave

"

Opotentt
tant
…
 two aspects of eco growth :
monetary(rise in income for
all); non-
monetary(improvement in
healthcare…)

①
②

More job opportunities

with better working
conditions

policies to f
ivualusive elomowny

pro gressive
-

tax

gor
speualing
-

(
provide edu 去 vamster
,
Bayment ,

iutrastructure . …
)

gor legislation
-

( amti -

discriminatiom traane
,

umiou .

slameryd umiloh -

Labounr ,

matiomal minimmun wage )

 sage
吒
\
naturan

resourl

Factors determine whether

to use natural resources
or not
①

②
 了
1 ABo 5
Labomr
(
( AS of ( abour )

lasour torre
(
aggregate

ItD
innempioyment

0 ASL >
ADL Gt W

;
= ADL
ASL
ASL
Reasons for disequil. unemployment
⽜
ALF

←
。
;
⼀
 Immempsoyment

total λƩ= [
mmem :
x + YZ

X丫
diseqmil .
unen .
=

tqnil .
umem .
⼆
YZ

the gap betumeeu ASL & ALF

↑

ILouw tsQw lassical

Unenployment rate wil

econoumisls tmimk

go back teh the

,

natura wate eve r

wnen
, iu
theve external aseumts s Gov )
…

ame

caused by t
intlatio o
o n w u e d unemploy mene p , intlakiou
r , cost

fiwms a m a l meal wage of corssumvers B ,AB & ADL ⼩

o
umemBioy meumt

in
lomg
a
uu
Determinations of natural unemployment l abour fium
of l
O
,

Policies to let the labour force

to be more employable

eg

女 NMW

Patterns of unemployment:
-decline industry
-region
-discrimination against
young, women, foreign…
workers
E.g. Change
from primary
to secondary
movements between countries
 Frictional and structural unemployment can be reduced
by introducing supply-side policies to enable labour to
be more employable

Limitations
of supply-
Cyclical unemployment can be side policies
reduced by introducing
expansionary demand-side policy

Limitations of demand-side policies

①

②
Characteristics of money:
-acceptability
-recognizable
-portability
-divisibility
-homogeneous
-can not be counterfeit
 Fisher equation:MV=PY
-m: money supply
-v: velocity of circulation; constant
-p: price level
-y: total output; constant

vl
双
Gux

monet
⼀
wvemlwatio .

Lueponits
Main functions of commercial banks:
-provision of demand and saving
deposit accounts
[demand deposit account] can be used
for making and receiving payments
[saving deposit account] mainly saving
and pays interest
-hold cash, gov securities and
equities of firms

( 1
iqniaity vatio )
 cause of change in money supply:
-increase in commercial bank lending
-increase in gov spending financed by
aims of commercial banks: commercial bank
-profitability
[achieve high Profits for shareholders by lending] -increase in gov spending financed by
-liquidity central bank
[enable customers to turn their assists into liquid -sale of gov bond to private sector
asset such as cash] -more money entering than leaving the
-security country
[ensure they have enough financial capitals to
cover for their riskier loans]
 The process of credit creation
-The process where commercial banks create more deposits and loans compared to
the amount of cash and figuid assets that they have. :

-Most transactions do not involve actual cash being paid out but just entries in creahit ummltiplier esewvenatio
banks' records. 少
-The deposits will increase the ability of the banks to create more deposits and
loans. ototorl repositl 1 ianbility = mmltiplier x
ocashalaposit
-Loans make deposits and deposits make loans, thereby increasing money supply 少
( ianidity }

malce o loans l lemaimg ototal

deposih- aheposit
people : cash
o

erals uitu
payom
cards . Alipay .

Wechat instead

Lash
of using
,

tramsauctioms

are recoroheol *

intheaagein
acLounts potential liability
.

on
Yorur
other tmammdal

cash transactiom .

少
potential increase in lending
)
vaitio
reseroe 比

l
[
wianl (
0
O
。

“
时
sets +

aset
avid
"
Liaisin

ie ototal areBosit

il
ocash
adeposit

單 = 25

25 x
$ 50000 =
1250000

分 1250000
50000
liabinity 12000 &
$

=$

— —

× 100
lianid assets

Determinants of credit creation:

-Size of the credit multiplier
-Liquidity ratio or cash reserve ratio
-Withdrawal pattern of customers
-Commercial banks keeping excess liquidity above the
minimum requirement ratio
-Government policy on money supply
-Customer confidence on commercial banks
 Security:债券

capitalratio ;

⼟
avaliable timaumcian api
-

risk asset R
us .

,
→
⼝
—

pretereuoIRa
siauidity

罚
osotumomexQz

gou wants to spend mone tham

tax veurenne

Sellinas
security
gov
s

ou } π
mo

5
mowey y
no ~双
t s

bowrow
Lewtvanl
Avom } (
cownnencian ]
divecty
OV

诞 s
baV
」

olMs
Effectiveness
 sReiulative
③ motive !

people holad fimalukial

assets 比 men
they

ave loum , aud mmen

tme of
prive hame

as ☆ ts
{

is mighemough ,

the
sleamlatorsvmicd
Sel thmeris- h o ecun

mom ☆
y

interest rake and

price torgou bomds

Wmore
in opposite

direr { tm 的 .
,

①
Evausactiou

wwotive :

making
d aax
utuuns
—

th -
cdanlpanyments

letermimeod
-

by
incomeamol

freamenlsy of pay mernts

iutarestinelastic
-

凸
Bhecautiomnry
motint :

beasleto
-

respomad
toComergenlies

intenestintlastic
-

① liquidity preteremce & suppiy ofmomey

②
aemand amd of
supply loams
⼀
D
borroming
=
b for
.

s
mouex
Qot
. -

suweod in

的 amas
 effectiveness of policies on reducing inflation

o st -
poush intlation
|
s
smppiy -

siode
policy

demanad
- pull intlatiom s
contrastitmary ademand - side polivy

*
IR
D m ay trom
atlvalt money intlow tm e couutoy
outsiahe

↑ ER 」
→ ☆ (☆
-

1M )
 ②

10 <s of
-

skillediasom ⼼

mhen
using

Gomtraltionary
Chelimor onl -

side

policies
;

intermal waime

inflatiom

rexternal va u u l

e 4
change rate

BoP :
capital aucount , tinancial account ; Eurhent acvount
infictioom mdans

a
decrease im

intermal Walue

约 mDmQy

⼬
depciation

λ> / M

[x -[ m
↑
]

仔 B ①
.

demmand -

pull intlation
'

im a shorkturn

<
强 PC

iuitially Cia 8 , when the

%

,
me
gou
CRPC
iustervert h
and e
weonune u12 tos40 . %

Spl omil shith outm amvds toSPL 1

Wuen intlction is 5 on SPC UR

-

% , 1
, is

al
308 %

, x mo
t m atler how
gor intier wenes En
,
Stays
the saune

natuval rete

of momkmmphoymehit
Crowding out:
-if increased gov spending is financed by borrowing
from commercial banks, funds available for private
sectors will decrease.

Crowding in:
-increased gov spending will increase gdp by a multiple
amount. Hence when people have higher income, their
saving may increase and allow private sector to borrow
more.
couwnrmeraianl
se
may
banks
of
reluc
hoaut

_ IRantmey
(

want
to ihraale

Tprofit
[Market-side supply-side policy]
-aims at increase (the role) of market forces such
as labour
-measurements include cut in income tax and
unemployment benefit, privatization, deregulation
and labour market reform. They may contradict
with reducing inequality, unemployment ,
unexpected responses, monopoly…

[interventionist supply-side policy]

-gov intervention of the market
-measurements include increased gov spending on
edu, training, infrastructure and tech&innovation
-however this may cause unexpected responses

Current account:
-trade in goods and services
-primary income
E.g. returns made from loans and savings;
salary made from abroad; dividends made from
foreign firms; profits made by multinational
firms operating abroad
-secondary income(current transfer)
*money transfer which no trade in g&s took
place
E.g. remittance send by workers from abroad;
direct foreign aids
Financial accounts:
-foreign direct investment
-portfolio investment
-hot money
-reserved assets(e.g. foreign
exchange reserve)
Fa deficit
-may bring profit in a long run as forms of
interest, profits and dividends
-however, if caused by loss of confidence for
domestic business, may result in outflow of
money from domestic to foreign banks and
movement of businesses to abroad.
Fa surplus
-create jobs and may promote eco growth
-finance deficit in other accounts
-however, may cause money outflow in the
future as forms of interest, dividends and
profits.

去
money
ho

时
 (<A +
It , FAt LA
“

-
2000

NEO ⼆ + 2000

Luvveut A
+

EA

Capital A

NEO

∵
[Demand-side policy]
-contractionary fiscal and monetary policies
are likely to reduce demand for import and
hence reduce current account deficit
-exchange rate adjustments can be taken to
correct bop. A higher er will discourage
export and increase imports, hence can reduce
current account surplus
[supply-side policy]
-can be introduced to increase international
competitiveness. Then may be able to reduce
current account deficit
-a highly trained labour force may attract fdi
or/and multinational companies
[protectionism]
-protectionism can be used to restricted
import. However there is a risk of retaliation.
[expenditure-switching policy]
-aim at switching consumption from imported goods to
domestic goods
-the most common measures are exchange rate, supply-side
policy and protectionism

[expenditure-reducing policy]
-aim at reducing the expenditure on imports by reducing
demand
-contractionary fiscal and monetary policies can achieve.
Determination of a fixed exchange rate:
-the gov buy or sell the currency to adjust er
E.g. gov buying currency will increase demand of
money
-central bank can adjust interest rate to affect hot
money and then affect demand for currency
-limit import
*however, a fixed exchange rate requires certain
amount of foreign reserves, which could have been
used for other purposes; also, a higher interest
rate is likely to reduce ad and cause unemployment
*a higher fixed er is called a revaluation and a
lower iced exchange rate is called a devaluation
Factors cause changes in a floating exchange rate system:
-demand for domestic export(increased demand in export cause an increased demand
in currency—>appreciation)
- domestic demand for import(increased demand for import will increase supply of
currency—>depreciation)

*income level of domestic and abroad, relative rate of inflation and etc will all
affect demand for import and export

-change in primary and secondary income

E,g, increase in inflow of profit made by Chinese from foreign market will increase
demand of the currency
- relative rate of interest(hot money)
-speculation
-trade barriers
 Marshall-Lerner condition:
-for a fall in exchange rate to work in reducing
current account deficit, sum of PED of imports and
exports need to be grater than 1

louveodit

⼩ desit

the move

eLanstic X& M

ave .
the

leSOERneed

to Mare t o

o trade
Posihion
Effect of a depreciation/devaluation of domestic currency if Marshall-Lerner condition is met:
-increased price of imports and decreased price of exports
(Reduced living standard of domestic consumers; higher cost for importing raw materials which may
cause cost-push inflation; increased (x-m) may cause a demand-pull inflation if no spare capacity
-j-curve effect
A j-curve effect states that a decrease in exchange rate will worsen current account deficit in a
short run before corrects it as it takes time for demand to react

*demand for both imports and exports are inelastic in a short run, hence a decrease in exchange
rate in a short run will reduce export revenue and increase import expenditure. However in a long
run, consumers respond to the price change and hence their demand alters.

-an economic growth may occur as (x-m) increases which push ad and the expanding of the export
industry may increase investment and create jobs
-hot money outflow through speculation
-increased value of foreign debt
-worsen terns of trade

[evaluation]
-PED of imports and exports
-state of global economy
…

*effects of appreciation can be applied in a reversed way

 Teaad
cyoses
inaividmal sulters poverty tneernony
of
dewlopnart
au o nene
resehrint
Tr wn spenning
HDI consists of gni per capita, life expectancy and expected year of
schooling
3 examples of composite indicators of living standard:
[human development index]
-consists of gni per capita, life expectancy and education or years of schooling
[measurable economic welfare]
-adjustment to gdp by adding and deducting factors that would change living standar
[multidimensional poverty index]
-33% indicators of living standard i.e. cooking fuel, sanitation, water, electricity,
housing and assets.
-33% education i.e. years of schooling and school attendance
-33%health i.e. child mortality and nourishment/nutrition
Limitations of numerical measures
-shadow economy, which refers to the undeclared
economic activities. Reasons for the shadow
economy can be the attempt to avoid tax and illegal
business; shadow economy varies between
countries, hence make it difficult to compare
between countries
-unrecorded voluntary work such as work done by
homeowners
-gov may fail to collect information of economic
activities from people, especially in countries with
low literacy
changes of pplt:
-development or growth rate of the economy
-cost of raising children
-women participation in the labour force
-policies on migration

Jeg .
the
young & the orad
 hiasher
,

Gini coeticient
The “

move
tme wa
\

,
uvea
*
+
i Gini co .
= 0

equal adisribation

Lurot
Lovemt
 "

wo
八
 '
①

ceg
veciBient

commtrywmay
]
be weanineal

vw iuupout frwm

donorCoumtry

>

③
 disadvantages of
heavy reliance on aids
lommssaids
pay post
ment on

intl
。
c

wot
may
organs
Smitable
provide
acuvive

uny choosing trade ovev aiads

EOS

savims ← inlltment
 ElO

[ limmitetions

of

去 wade 了

PED for
-

aghi .

imelastir

tience even it

PD , reveme =

Erade
-

pactmeng

may Coumtrol Bri @

<
axpcoit consmmer 3

agricuituwal
-

b&
price may
press usred to be

0 w

recipitierst
what

econoomnihs
时

camro
prevent
beingpioieea

⼀
 FDI increases tinance investwmemt

reasons for debts:

-ca deficit
-overconfidence for paying the loans
-good use is not made of funds borrowed
-unexpected events occur(e.g. global recession;
Change
In exchange rate…)
④

Aims of imf

3 functions
of imf
 。
时

Causes of globalization:
-advanced communication and tech
-better transport
-lower trade barriers
-market deregulation
⼀

③
 ves trictions betoveen
-
removGl of tvade

Membevs

own external trade policies to wards hou . bhnedls

-
Mo vestmictltus bse tuecen owehnsers

bommon axterna l taritt uitu v wmem

-

tron
-

tree toade s mooenelst s omG & Sand

Eapital & lapour betweer wmehsbers

Melubers shave urnenay f monetary policiqs

cdiHeneish ecomoumies
8

one large eonoorny

∞