Question

IMPORTANT WRITTEN ASSIGNMENT: This is the most important (and thus heavily weighted) of the various assignments required in ECON 2620. It is basically worth twice that of every other assignment. THIS ASSIGNMENT REQUIRES A 2 TO 5 PAGE PAPER WRITTEN BY THE STUDENT (double-spaced with 10 or 12 point font). 1 ½ pages are not enough to earn full credit for this assignment. See complete details below. DESCRIPTION: Microeconomics is very relevant to your life as a consumer, student, worker, and citizen. This course addresses many topics that are frequently addressed in the press. • Step One: Each student must locate ONE current newspaper, magazine, or journal article that directly relates to a topic covered in this course. “Current” means published within the last two years. Internet news sites (i.e. www.usatoday.com and www.cleveland.com) are acceptable and recommended as sources. However, your source should be a newspaper, magazine, or journal not merely any educational website. • Step Two: The student is then to write a paper between 2 to 5 pages in length (doublespaced with 10 or 12 point font). 1 ½ pages are not enough to earn you full credit. The purpose of the paper is to relate a topic in this course (and text) to recent news-worthy events. Part of your paper should include background information, definitions, etc. gleaned from our text. Another part of your paper should discuss the current event and how that current event relates to the information in our text. This project will be graded for content, presentation, thoroughness, insight, accuracy, organization, professionalism, correct spelling, and writing skills. MUST REFERENCE SOURCE MATERIAL: Documentation of your research and references (i.e. newspaper or magazine articles or relevant web sites) MUST be included. Specifically, that means that student must cite the article or other source material (using any reasonable citation method including MLA and others). Remember, the project also requires 2 to 5 pages of analysis written by the student TOPICS: The student should be a regular reader of newspapers and magazines. Over time, you should develop an interest in particular industries and products and in various issues affecting business, our regulatory environment, and government. Find an article of interest to you and relate it to one or more topics in the text. Or, identify a topic in the text of interest to you and then find one or more current (within two years) news articles discussing a recent development in that area. Then, write a report that relates the Microeconomics topic(s) in the text to the news article(s). 2 EXAMPLES: For instance, the student may choose to discuss one of the following as it appears in The Plain Dealer, Wall Street Journal, or other news resource: • an example of the laws of supply and demand in action (possibly resulting in a shortage or surplus of goods) • an example of externalities or spillover with regard to a certain product or service (i.e. pollution—a negative externality—and the impact of the Clean Air Act on the Northeastern United States) • recent developments in taxation • recent developments in the activities of the public sector (government) • recent developments with trade agreements and alliances • an analysis of pricing in a certain industry (identifying it as either inelastic or elastic) • an analysis of costs (fixed vs. variable) in a particular industry • an analysis of the level of competition in a particular industry • recent developments in the regulation of a particular industry • OR ANY OTHER TOPIC IN OUR TEXT AS LONG AS IT CAN BE RELATED TO A RECENT NEWS ARTICLE. Pick one of interest to YOU! LENGTH: Your paper should be 2 to 5 pages in length (double-spaced with 10 or 12 point font). Longer papers are also acceptable. The paper should be as long as it takes to describe the economic issue(s) involved and to relate them to the current development being discussed in the press

N/B discussion must be from an article in a newspaper in the USA

EG The Plain Dealer, Wall Street Journal, or other news resource

Answer 1

Government spends money for a variety of reasons, including:

1. To supply goods and services that the private sector would fail to do, such aspublic goods, including defence, roads and bridges; merit goods, such as hospitals and schools; and welfare payments and benefits, including unemployment and disability benefit.

2. To achieve supply-side improvements in the macro-economy, such as spending on education and training to improve labour productivity.

3. To reduce the negative effects of externalities, such as pollution controls.

4. To subsidise industries which may need financial support, and which is not available from the private sector. For example, transport infrastructure projects are unlikely to attract private finance, unless the public sector provides some of the high-risk finance, as in the case of the UKs Private Finance Initiative – PFI. During 2009, the UK government provided huge subsidies to the UK banking sector to help deal with the financial crisis. Agriculture is also an industry which receives large government subsidies. See: CAP.

5. To help redistribute income and achieve more equity.

6. To inject extra spending into the macro-economy, to help achieve increases inaggregate demand and economic activity. Such a stimulus is part of discretionary fiscal policy.

Local government is extremely important in terms of the administration of spending. For example, spending on the NHS and on education are administered locally, though local authorities. Approximately 75% of all public spending is by central government, and 25% is by local government.

Central and local government (public sector) spending

Using public spending to stimulate economic activity has been a key option for successive governments since the 1930s when British economist, John MaynardKeynes, argued that public spending should be increased when private spending and investment were inadequate. There are two types of spending:

1. Current spending, which is expenditure on wages and raw materials. Current spending is short term and has to be renewed each year.

2. Capital spending, which is spending on physical assets like roads, bridges, hospital buildings and equipment. Capital spending is long term as it does not have to be renewed each year - it is also called spending on ‘social capital’.

Where does the spending go?

The main areas of UK government spending in 2016, which totalled £761.9 bn, were:

1. Social protection (pensions, tax credits and other benefits)
2. Health
3. Education
4. Debt interest
5. Defence

Government spending (2016-17) (£m)Source: Estimates,www.gov.uk/governmentwww.economicsonline.co.ukSocial protectionHealthEducationDefenceDebt interestHousing & EnvironmentPublic orderPersonal social servicesTransport050,000100,000150,000200,000250,000300,000

Types of fiscal policy

Fiscal policy is the deliberate adjustment of government spending, borrowing or taxation to help achieve desirable economic objectives. It works by changing the level or composition of aggregate demand (AD).

There are two types of fiscal policy, discretionary and automatic.

1. Discretionary policy refers to policies that are implemented through one-off policy changes.

2. Automatic stabilisation, where the economy can be stabilised by processes called fiscal drag and fiscal boost.

Central government borrowing

Government must borrow if its revenue is insufficient to pay for expenditure - a situation called a fiscal deficit. Borrowing, which can be short term or long term, involves selling government bonds or bills. Bonds are long term securities that pay a fixed rate of return over a long period until maturity, and are bought by financial institutions looking for a safe return. Treasury bills are issued into the money markets to help raise short term cash, and last only 90 days, whereupon they are repaid.

Local government borrowing

If the revenue from the council tax and central government support is insufficient to meet spending commitments, local authorities can also borrow by issuing bonds. Only around 25% of local authority spending is financed by local revenue raising, 75% coming from central government and by borrowing. (Source: Local Government Association)

Public Sector Net Borrowing

If the borrowing requirements of both central and local government is combined, the amount of borrowing required is called the public sector net borrowing (PSNB). The need to borrow varies considerably with the business cycle.

During periods of economic growth, tax yields rise and spending on welfare payments fall, pushing the public finances towards a surplus. During periods of economic slowdown, tax yields fall and welfare payments rise, pushing the economy towards a fiscal deficit.

In 2009, the government introduced a new measure of public sector borrowing, called Public Sector Net Borrowing Ex (PSNBEx). This measure excludes payments to the financial sector to ease the credit crisis.

SEE: PUBLIC SECTOR NET BORROWING EX (WWW.STATISTICS.GOV.UK)

See: The 2016 Budget

The Chancellor’s golden rules for borrowing

The Chancellor’s golden rules for sustainable investment are firstly, to balance the books over a trade cycle, and secondly, only to borrow to fund capital projects, such as road building.

Borrowing, and the financial crisis

According to the Institute for Fiscal Studies (IFS), the central government net borrowing requirement for 2009, of approximately £150b, was almost double initial estimate. The main reason for this overshoot was the rescue package for the banking sector, following the global financial crisis.

Regional trade agreements:

Regional trade agreements (RTAs) have risen in number and reach over the years, including a notable increase in large plurilateral agreements under negotiation. Following the notification of the RTA between Mongolia and Japan in June 2016, all WTO members now have an RTA in force.

Non-discrimination among trading partners is one of the core principles of the WTO; however, RTAs constitute one of the exemptions and are authorized under the WTO, subject to a set of rules. In line with these rules, and also recognizing the need to enhance transparency and increase understanding of RTAs' impact on interests of WTO members, the WTO Secretariat was instructed by WTO members to gather information on RTAs. The organization also provides a forum for discussions on the implications of RTAs for the wider multilateral trading system.

What all RTAs in the WTO have in common is that they are reciprocal preferential trade agreements between two or more partners. Information on RTAs notified to the WTO is available in the RTA Database. The WTO also receives notifications from WTO members regarding preferential trade arrangements (PTAs). In the WTO, PTAs are unilateral trade preferences. Information on PTAs notified to the WTO is available in the PTA Database.

Transparency Mechanism for RTAs

WTO members agreed in 2006 to implement a provisional mechanism to enhance the transparency of RTAs and understand their effects on the multilateral system. Under this process, members notify the WTO about their RTAs and these are discussed by the wider WTO membership on the basis of a factual presentation prepared by the WTO Secretariat.

At the 10th Ministerial Conference in Nairobi in 2015, WTO members agreed to work towards the transformation of the provisional mechanism into a permanent mechanism without prejudice to questions related to notification requirements.

Committee on Regional Trade Agreements

The Committee on Regional Trade Agreements considers individual regional agreements and is also mandated to hold discussions on the systemic implications of the agreements for the multilateral trading system. The Committee on Trade and Development also implements the Transparency Mechanism for RTAs between developing countries.

> See also Transparency Mechanism communications (early announcements of RTAs, notifications of changes, etc.)

• The WTO’s Committee on Regional Trade Agreements

Negotiations on RTAs

Negotiations to clarify and improve WTO disciplines on RTAs fall under the work of the Negotiating Group on Rules, which reports to the Trade Negotiations Committee.

• Negotiations on RTAs

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WTO rules on regional trade agreements

The WTO’s rules on regional trade agreements:

• Text of GATT Art XXIV, Ad Art XXIV and its updates, including the1994 “Understanding”.
• Enabling Clause for developing countries.
  Text of the 1979 GATT decision allowing preferential trade in goods among developing countries.
• Text of GATS Article V
• Find decisions of WTO bodies concerning the regional trade agreements in the Analytical Index — Guide to WTO Law and Practice
• The Doha negotiating mandate
  Section on regional trade agreements in the 2001 Doha Ministerial Declaration
• Text of the 2006 General Council Decision on the Transparency Mechanism for Regional Trade Agreements

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Recent working papers and publications

• WTO Staff Working Paper: TBT provisions in Regional Trade Agreements: To what extent do they go beyond the WTO TBT Agreement?

• All staff working papers on RTAs

• Regional Trade Agreements and the Multilateral System

• All WTO publications on RTAs

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Recent events

• Book launch: Regional Trade Agreements and the Multilateral Trading System — 29 September 2016

• Older events

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Other Resources / Databases of interest

• I-TIP-Services Portal

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  A set of linked databases that provides information on Members' commitments under the WTO's General Agreement on Trade in Services (GATS), services commitments in regional trade agreements (RTA), applied measures in services, and services statistics.
• Dataset of services commitments in RTAs
• World Customs Organization Database of Preferential Agreements and related Rules of Origin

RECENT ALLIANCE:

The Latin American trading bloc known as the Pacific Alliance has begun talks for free trade agreements (FTAs) with Australia and New Zealand, respectively, following a summit that also welcomed both of those countries and two others as incoming “associate members” of their group.

The four-country Pacific Alliance includes Chile, Colombia, Mexico, and Peru as its members. The coalition was formed in 2011, with the framework agreement confirmed the following year. (See Bridges Weekly, 13 June 2012)

The creation of the new “associate member” role was announced after the Pacific Alliance Leaders’ Summit, which was held in Cali, Colombia, from 29-30 June and included the endorsement of the “Cali Declaration.”

Along with Australia and New Zealand, the two other countries to sign on to become associate members were Canada and Singapore.

Under the Pacific Alliance, the term “associate member” opens up the possibility of collectively negotiating trade deals with other countries outside the Alliance – a development that was welcomed by participants as a landmark move.

“This summit opened a new chapter in the Alliance’s history,” said Colombian President Juan Manuel Santos in describing the new “associate member” position, according to comments reported by Reuters.

The process for becoming an associate member requires negotiations between full members and the country wishing to take on this role. According to the guidelines adopted in Cali last week, the “terms of reference” for these negotiations must “take into account high standards in commercial, economic terms that favour the opening and integration of markets, including, but not limited to, the following areas: goods and services trade, as well as investment.”

Focus on open markets

The Pacific Alliance group was formed with the goal of liberalising goods and services trade, along with facilitating the free movement of persons and capital. They have since announced over the years a series of milestones and intended targets, such as a deal to eliminate tariffs on 92 percent of goods and phase out the rest over a longer timeframe. (See Bridges Weekly, 13 February 2014)

“In times of such uncertainty and scepticism of so many people about the importance of an open economy, of trade agreements, of cooperation, of integration, the Pacific Alliance has succeeded and re-vindicated a path of unity and collaboration,” said Chilean President Michelle Bachelet last week, according to comments reported by RCN Radio.

The Pacific Alliance also has 52 observer countries, who must share the coalition’s objectives and can be invited to the Alliance’s meetings. They can also apply to become full-fledged members of the Pacific Alliance if they have trade deals in place with at least half of the coalition’s full members.

There are already two countries in the process of negotiating accession as full members, namely Costa Rica and Panama. The group has also been looking to establish improved economic ties, including through trade, with another bloc in the region known as Mercosur, which includes among its members Argentina, Brazil, Paraguay, and Uruguay. (See Bridges Weekly, 13 April 2017)

Ciobo, McClay highlight FTA potential

Australian Trade Minister Steven Ciobo and New Zealand Trade Minister Todd McClay both touted the added value of inking trade deals with this Pacific bloc, citing its large market, economic growth, and approach to trade as key factors.

Australia and New Zealand are already observer countries to the Pacific Alliance, as well as having the new rank of associate member.

“The Pacific Alliance is a grouping of fast-growing, like-minded economies committed to the liberalisation of trade,” said McClay in a press statement. He also characterised the upcoming talks as a key component of Wellington’s larger “Agenda 2030” objective of having 90 percent of merchandise trade falling under the coverage of a free trade agreement by that year.

That goal has also spurred New Zealand towards pursuing the eventual launch of trade talks with the European Union, along with exploring the possibility of such an accord with the United States. (See Bridges Weekly, 22 June 2017)

Ciobo, meanwhile, described Australia’s goal in negotiating a Pacific Alliance FTA as that of a “comprehensive, high quality agreement to open new markets for Australian exporters.” He specifically cited Canberra’s interest in areas such as mining, farming, manufacturing, and services trade – along with the large market that would open up should Australia ink an accord with these four countries.

“Australia’s ability to capitalise on this demand is limited by high tariffs that block trade. Tariffs of up to 80 percent are imposed on Australian beef, while dairy products attract tariffs of up to 45 percent and sugar attracts tariffs of more than 30 percent. Australia’s services exports – including education and mining services – also face competitive barriers,” he said.

Moreover, he also noted that Australia has a long history of negotiating with this group of countries. Australia and Peru launched trade deal talks earlier this year, while Australia, Chile, Mexico, and Peru are four members of the Trans-Pacific Partnership (TPP) – a trade deal that has been signed, but not yet ratified.

While the TPP group is currently determining its next steps as the “TPP-11” following the withdrawal earlier this year of the United States, the group has expressed an interest in not losing the gains from those negotiations. Earlier this year, member of the Pacific Alliance and the TPP met in the Chilean coastal town of Viña del Mar to discuss different options for integration, both within their respective groups and collectively. (See Bridges Weekly, 16 March 2017)

ICTSD reporting; “Alianza del Pacífico destaca su integración en tiempos de ‘incertidumbre’,” RCN RADIO, 30 June 2017; “Alianza del Pacífico se abre en Cali a nuevo miembros,” REUTERS, 30 June 2017.