Study Guides (238,280)
Canada (115,054)
ECON 227 (13)

Final Exam Review.pdf

9 Pages
Unlock Document

McGill University
Economics (Arts)
ECON 227
Christopher Ragan

ECON 219 Final Exam Review (paired with the midterm review) December 20, 2011 Challenges of aging population - challenge #1: productivity - GDP/POP = (GDP/E) x (E/LF) x (LF/POP) - GDP/POP: per capita income - GDP/E: productivity (output per employed person) - E/LF: employment rate - LF/POP: labour force participation rate (percentage of people working) - over the past 40 years: - GDP/E: increasing - E/LF: no change - LF/POP: increasing - next 40 years? - GDP/E: increasing - E/LF: no change - LF/POP: decreasing because of aging population - policies to promote productivity growth (1) a benecial overall economic environment (2) other policies are centered around: - quality of labour - quantity and quality of capital - innovation and technical knowledge - competition, role of Foreign Direct Investments (FDI) (3) the costs of productivity policies: - direct scal costs - winners and losers - challenge #2: scal adjustment - the two part scal squeeze (1) slower growth in per capita tax base - labour force and GDP will continue to grow, but at a slower pace due to aging population - if GDP growth slows, tax base growth is slowing down (2) faster growth in per capita spending on age-related items - old people need more healthcare - the difcult scal choices (1) restrain spending growth - especially on non-age-related items (2) increase tax rates (or the tax burden) (3) defer the problem - by increasing borrowing (debt) - if we do this, we will revisit the debt wall of the mid 1990s - popular quick xes (1) increase immigration - will increase labour force participation rate, but immigrants get old too and will use healthcare (2) increase fertility - offer money for to each family for each child born (3) increase retirement age (or LF part rates) (4) restrain the growth of healthcare spending - even if you are able to slow down the rate of growth of healthcare spending, it will still be growing faster than GDP (5) improve productivity growth - more of an aspiration than policy - the coming demographic forces will drive two macro policy agendas in Canada (1) the need for enhanced productivity growth (2) the need to make difcult scal adjustments - better productivity growth --> nd cost-effective policies - scal adjustment --> identify our scal priorities Chapter 34: Trade Policy - protectionism: any policies designed to protect domestic industries from foreign competition - examples: tariffs, non-barrier tariffs (import quotas, cumbersome customs regulations) - free trade encourages countries to specialize along the lines of comparative advantage: - allows an increase in average material living standards - specializing in the areas of comparative advantage can increase total world output using a given amount of resources - the gains from specialization and trade make the country as a whole better off - but free trade does not necessarily make every individuals person better off; to do this depends on the internal tax/transfer programs within a country - two important valid arguments for protection: (1) objectives other than maximizing national income: (a) diversication: - advantages from a diversied (less specialized) pattern of production include: - less economic risk of reduction in demand for specic products - danger that technological change may make products (and skills of workers) obsolete (so not have skills to produce other products or generate the export revenues needed to import them) - issue: which is better or worse at predicting which areas to protect - government or private sector? (2) social and psychological: (a) desire to protect specic groups in society - example: in Canada, free trade may further reduce the income of unskilled workers relative to skilled workers - in both cases, protectionism could achieve these objectives - but at cost of reduced average income- factor endowment theory: exported goods are made by skilled workers, imported goods are made by unskilled workers - the economistss job is to advise on the costs and benets of free trade and its alternatives - including internal redistribution policies to compensate the losses - use protectionism to maximize national income possibly at the expense of other countries incomes: (a) use import tariffs to improve the terms of trade - Terms of Trade (T of T) index (weighted average): Price of countrys exports / Price of its imports - tells us how much can be imported for each unit of exports - a tariff that reduces domestic D for foreign goods by enough to cause a fall in P of imported food will improve T of T - but must be a large country to have this effect - test example: a US tariff on Canadian softwood lumber may reduce the domestic price in Canada - so reducing the before-tariff price paid by the US (b) protect against unfair practices of other countries (create a level playing eld) - countervailing duties to offset the effect of government subsidies for export industries - but what is unfair may depend on who is looking - example: US argued that Canadian government leased Crown land to lumber rms at rates b
More Less

Related notes for ECON 227

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.