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Supply – side economics. Laffer curve.

Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce (supply) goods and services, such as lowering income tax and capital gains tax rates, and by allowing greater flexibility by reducing regulation. According to supply-side economics, consumers will then benefit from a greater supply of goods and services at lower prices. Typical policy recommendations of supply-side economics are lower marginal tax rates and less regulation.

 

The Laffer curve is a theoretical representation of the relationship between government revenue raised by taxation and all possible rates of taxation. It is used to illustrate the concept of taxable income elasticity (that taxable income will change in response to changes in the rate of taxation). First, the amount of tax revenue raised at the extreme tax rates of 0% and 100% is considered. It is clear that a 0% tax rate raises no revenue, but the Laffer curve hypothesis supposes that a 100% tax rate will also generate no revenue, arguing that at such a rate there is no incentive for a taxpayer to earn any income, thus the revenue raised will be 100% of nothing. If both a 0% and 100% rate of taxation generate no revenue, but some intermediate tax rate generates some tax revenue, it follows from the extreme value theorem that there must exist at least one rate where tax revenue would be a non-zero maximum. The Laffer curve is typically represented as a graph which starts at 0% tax with zero revenue, rises to a maximum rate of revenue at an intermediate rate of taxation, and then falls again to zero revenue at a 100% tax rate.

 

International trade. Comparative advantage.

International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product (GDP).

In economics, the law of comparative advantage says that two countries (or other kinds of parties, such as individuals or firms thereas) will both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods. Even if one country is more efficient in the production of all goods (absolute advantage) than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies.

 

48. International trade: trade barriers.

Trade barriers are government-induced restrictions on international trade. The barriers can take many forms, including the following:

1)Tariffs

2)Non-tariff barriers to trade

3)Import licenses

4)Export licenses

5)Import quotas

6)Subsidies

7)Voluntary Export Restraints

8)Local content requirements

9)Embargo

10)Currency devaluation

 

International trade: cases and costs of protection.

 

The balance of payments.

 

Balance of payments (BOP) accounts are an accounting record of all monetary transactions between a country and the rest of the world.These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers.

 

51.Exchange rates: types

Rate at which one currency may be converted into another. The exchange rate is used when simply converting one currency to another (such as for the purposes of travel to another country), or for engaging in speculation or trading in the foreign exchange market. There are a wide variety of factors which influence the exchange rate, such as interest rates, inflation, and the state of politics and the economy in each country.

Types:

1)Fully fixed exchange rates

In a fixed exchange rate system, the government (or the central bank acting on its behalf) intervenes in the currency market in order to keep the exchange rate close to a fixed target. It is committed to a single fixed exchange rate and does not allow major fluctuations from this central rate.

2) Semi-fixed exchange rates

Currency can move within a permitted range, but the exchange rate is the dominant target of economic policy-making. Interest rates are set to meet the target exchange rate.

3) Free floating

The value of the currency is determined solely by supply and demand in the foreign exchange market. Consequently, trade flows and capital flows are the main factors affecting the exchange rate.

4) Managed floating exchange rates

Most governments engage in managed floating systems, if not part of a fixed exchange rate system.

5)The advantages of fixed exchange rates

Fixed rates provide greater certainty for exporters and importers and, under normal circumstances, there is less speculative activity - though this depends on whether dealers in foreign exchange markets regard a given fixed exchange rate as appropriate and credible.

6)The advantages of floating exchange rates

Fluctuations in the exchange rate can provide an automatic adjustment for countries with a large balance of payments deficit. A second key advantage of floating exchange rates is that it allows the government/monetary authority flexibility in determining interest rates as they do not need to be used to influence the exchange rate.

 

International exchange – rate systems.

1)FIXED EXCHANGE RATE SYSTEM

An exchange rate that is kept within a certain value. It is prevented from changing too much

 

2)FLOATING EXCHANGE RATE

The £ can change in value freely against the $. It could end up at any exchange rate. the government will not intervene to influence its rate.

 

Privatization: essence, stages.

essence: Privatization is the incidence or process of transferring ownership of a business, enterprise, agency, public service or property from the public sector (the state or government) to the private sector (businesses that operate for a private profit) or to private non-profit organizations.

Stages:

– Mass Privatization (I)

– Loans for Shares (II)

– 1998 Financial Crisis (III)

 

The investment policy of Russia.

 

 

 

 


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