ZIS IB Year 2 - Maley

China has accused Italy, Greece and the EU for supposedly illegally subsidizing domestic solar manufactururs (suspected that due to a decline in Italian imports of Chinese Solar panels.)  The US international Trade Commision then made a locked tariff of 24-36% on imported solar panels from China.  A year ago the Coalition of american Solar Manufacturers filed antidumping cases against China, saying they were flooding the US market with inexpensive and heavily subsidized solar panels that the US couldnt compete with.  The US fears that China is dumping because it means their domestic producers are not able to compete in the market for solar panels. Therefore this high tariff of 24-36% has been imposed to promote consumption of domestic solar panels. 

Based on the article it can be deduced that budget deficit plan in Germany is quite successful. Overall Germany has been able to accumulate a surplus of 8.3 billion Euros through tax revenues and social security funding in only 6 months. The surplus was quite unexpected because in 2011 their was a deficit in Germany. However, this surplus also suggests that the revised tax plan and fiscal policy in Germany are quite successful and that the nation is working towards fully reaching the 4 major economic goals, in particularly that of economic growth. However, the article also suggests that this surplus could decrease by the end of 2012, in which case the fiscal policy may not be as successful after all. To fully examine this budget deficit in Germany data from the whole year of 2012 is needed. However, as of now the article suggests that the policy implemented is quite a successful one.  

Spain's 17 regional governments have agreed to stick to budget deficit targets set by the central government but regions are struggling to meet the deficit target of 1.5% gross domestic product for this year. Some of the regions have accessed an 18 billion euro emergency fund set up by the central government to meet their debt financing obligations. Furthermore, five regions have asked for a combined 15 billion euros. The regional leaders have called for a redistribution of the burden sharing between the central and regional governments in meeting deficit targets. However, Prime Minister Rajoy has stated that the overhaul should not be negotiated until  next year, to avoid unnerving investors already concerned about Spain's lack of budgetary discipline.

Luxembourg's Prime Minister Jean-Claude Junker is defending the newly released budget bill, in place for 2013. The bill set in place plans to invest more money into the consolidation package, in place to consolidate Luxembourg's budget. A 1.8% increase in government spending, in relation to the budget set in 2012, is put forth to remove any divergence from the country's stability and growth. Juncker stressed that although the recent financial crisis which has caused a recession in Luxembourg over the past 4 years, the bill will insure that Luxembourg's deficit will be lower in 2013 than 2009. Juncker says that in 2013, Luxembourg's deficit will be at 4.3%.  Juncker says the reason Luxembourg has come into deficit is the investment of 200 million Euros into Luxembourg's employment fund. Furthermore, the increase of unemployment isn't beneficial to the countries current financial situation.  He does not plan to raise VAT, as some countries in the EU such as the Netherlands have recently done to fill part of their deficit. This would only harm economic recovery and affect the country's low-income earners.  Juncker's ultimate goal is to make Luxembourg debt free by 2014. The minister promised that the government would try their very best to achieve this goal, while still being aware that the economic development of Luxembourg remains "extremely fragile".

The National Institute of Economic and Social Research has advised the UK government to ease its fiscal policy because of the danger of the economy entering another recession. The UK fiscal policy is unintentionally causing deficient demand. Demand was already relatively low as private and public sectors were focusing on paying off their debts. This decline in demand has lead to a decrease in consumption and a fall in GDP. Also, businesses have become reluctant to invest due to the uncertainty about domestic and foreign demand. The UK government has been cautious about easing their fiscal policy because of their desire to achieve their fiscal goals, which they have been relatively successful in reaching so far, as stated by a Treasury spokesman who said: "… the government's commitment to deficit reduction has helped maintain market confidence". A way for the UK to ease their fiscal policy and subsequently increase demand would be to cut taxes, which would allow households to have a higher level of disposable income and firms would be incentivized to invest more because of the rising domestic demand.  

The Portuguese government has revealed the details of its draft budget for 2013. It is said to be one of the harshest in the country's recent history.  The Portuguese government has spent a significantly greater amount than the total revenue, and is therefore experiencing a budget deficit. Due to this deficit, government is forced to borrow money from the public, thus increasing its budget deficit even further, and ultimately increasing their total national debt.  The government was already granted a 78 billion- euro bailout last year, which has still not accounted for their budget deficit. Therefore, the Portuguese government was forced to make some huge changes in the economy,.  As stated in the article, the government will have to borrow money from the public through average income taxes, which will increase from 9.8% to 13.2%. Furthermore, they will have to cut spending worth up to 2.7 billion euros next year, which includes laying off 2% of the countries 600.000 public sector employees.  Moreover, the Portuguese government has decided to cut their spending by not raising social security contribution next year from 11% to 18%.  According to Vitor Gaspar,finance minister, this budget would allow Portugal to reduce its budget deficit to 4.5% in 2013.  Ultimately hoping to achieve the European Union target of 3% of GDP. 

The article discusses that the US may face a fiscal cliff in order to reduce the large deficit that has accumulated in the past. A fiscal policy stands for a series of major tax increases and government spending cuts if Congress does not act. The article discusses that through lower government spending and higher taxes it is expected that $600 billion can be extracted from the economy to decrease the debt. However economists think that every dollar of deficit reduction will subtract the same or a greater amount from economic growth. In theoretical terms this would make sense. If government spending decrease this reduces aggregate demand in the economy and by that will cause a decrease in real GDP. Households will cut back on purchases and especially households that are dependent on government support through unemployment benefits will suffer from the policy. Although this will decrease the deficit of the US it may be that it distracts the fragile recovering economy. 

Britain's budget deficit has turned out to be smaller than previously thought in the first six months of the current tax year. However, recent data suggests that they will have to announce extra government spending cuts or taxes rises if it is to meet this year's deficit-cutting target. Britain's plans to eliminate the deficit by 2015 have been pushed back by two years as economic growth has been far weaker than predicted and its deficit still remains the largest of any major European country. 

Currently the economic growth forecast of South Africa isn't looking as promising as thought, while  additionally its budget deficit is going to be higher than promised. 4.8 percent of GDP instead of 4.6 percent. According to the president, Gordhan, this is due to slower economic growth and not due to increase in government spending. He emphasizes that there will be no increase in government spending. From a neoclassical side this is a good thing as an increase in spending accompanied by a decrease in taxes will only further increase the governments budget deficit. The mining strikes ongoing in South Africa have had two significant consequences. 1. more people have become unemployed due to the strikes for higher wages.2. Offshore investors are worried that the government will increase spending to ease the social tensions. As a result both decreases AD as there is less consumption and investment. 

Ireland's high current unemployment rate of 14.9 percent is a result from its economic situation : Ireland is in a recession. The article clearly stipulates this, there is a 'recession in the real domestic economy'. The recession arose from the housing bubble : mortgages were cheap, people overborrowed and then the high housing prices fell so that people were less wealthy and no longer able to pay their mortgages. Wealth is a determinant of AD. It is the added value of all assets or stocks. If wealth or perceived wealth increases, then so will a household's consumption of goods, thereby shifting demand, as the household feels 'wealthier' or able to purchase more. The reverse is also the case, when wealth declines, demand declines, such as in Ireland. The Irish were much less willing to consume goods, as they believed they were less wealthy or had less money( which they eventually did , upon having to pay mortgages; debt), and so consumption decreased, which thus shifted aggregate demand into a demand slide recession. This is a situation where prices in a nation inflate and output decreases, due to the lesser demand. If less is being produced, less factors of production are required. Thus labor, a major factor of production is no longer required in the economy, which gives firms the incentive to lay off many of their workers. This is the unemployment Ireland is experiencing. It is interesting that the article also depicts the  'austerity drive'  that the Irish government resulted to in the recession.  As it correctly suggests, this is 'self defeating', as during a demand slide recession the Keynesian policy follows that the government should not save its funding, but rather spend. In a time of recession, the government should spend,  so as to decrease unemployment stimulate the economy. If the government spends, this will have a multiplier effect through the economy, as it provides income to households ( by spending, the government employs labor), where househo

According to this Article inflation in Turkey increased to 10.45% and the central bank's Inflation rate was 5.5%. This difference in inflation rate occurs because when a country's central bank tries to fight inflation, as is being done in Turkey, the nominal interest rate will still tend to increase. Consequently, investment and consumption are discouraged due to the high inflation rate set by banks. This is because firms will not invest anymore because it is more expensive to borrow money and consume. In addition, consumption will decrease because the cost of borrowing money to consume large goods such as cars or houses is a lot more expensive.  

This article talks about how South Korea's inflation is at its lowest in 12 years at 1.2 per cent. This has both positive and negative effects. It is positive because price level is only slightly increasing, which is good for consumers withing South Korea. However it also has many negative effects. Because inflation is so low employment and real GDP will only be slightly increasing, these are elements that are good for the economy when they increase. One of the main reasons why the inflation is so low is because exports, a key section of the country's economy, have decreased. If exports continue to decrease then this could result in a decrease of GDP in the country which is not good for people living in the country and the country's economy. However, the article says that it is unlikely that South Korea will experience deflation and that this is likely the trough for inflation, meaning inflation is due to increase.

This article states that Canada's inflation rate has unexpectedly slowed for a second month this past August, meaning a disinflation is taking place. The consumer price index in Canada rose 1.2% in August from a year ago compared to a 1.3% gain in July, showing a slowing down in the rate of inflation. This has reduced pressure for the Bank of Canada governor to raise interest rates. Normally, when a country's price levels are increasing and inflation is taking place, banks are encouraged to increase interest rates. Increasing them make it more profitable for consumers to borrow less and invest more, resulting in a decrease in consumption and therefore a decrease in AD. This will lower price levels in the country in the long run, solving or reducing the problem of inflation.

This is a classic example of cost-push inflation. The supply costs are increasing (in this case the workers wages) which means that SRAS shifts to the left, as less is being is being supplied. Firms hire less workers or produce less because of the high costs. As a result, price levels rise, unemployment levels rise and the real gross domestic product falls. This is also obvious because, if workers go on strike as mentioned in the article, then they are producing less goods, meaning that GDP obviously decreases. This could turn into an inflationary spiral. This spiral is because, when wages are increased for purposes such as to pay or rent or everyday goods, the firms also demand higher prices, which causes those who buy from them to charge more too. This is what causes the cycle to begin. Otherwise it could get to a point where currency becomes worthless.

India's inflation rate rose to 7.55% in August, rise that was much faster than expected by analysts. The primary reason behind this is a rise in India's food prices. In order to decrease inflation and lower prices, the Reserve Bank of India tried to raise interest rates. This should cause a decrease in consumption and demand. Thus in the long-run, disinflation will occur as firms will be forced to lower prices in order to maintain a profit. However, altering interest rates has been tricky for central policy-makers as India imports a large quantity of their food from the US, who ultimately have control the prices.  The US will probably add to India's inflation as they are "likely to push up global commodity prices".  Even through raising interest rates, which can be damaging as they hurt businesses and consumer confidence, India still has little control over global prices. As a result, India's inflation will raise even. 

Although fuel costs throughout the UK are rising, UK's inflation has fallen to 2.5% in September from 2.6% in August. It is expected that the rising costs for fuel would cause firms to increase prices as their costs of production are increasing, resulting in cost-push inflation. Instead, lower prices for clothes, furniture, and household services have offset the increase in fuel costs. Furthermore, this decline in costs of food, clothes, and household good has eased the rise in travel fares.  This significant decrease in prices for foods, clothes, and household goods was caused by an incredible decrease in consumer demand during the recession in the UK.    

India's investors and some politicians want the Reserve Bank of India (RBI) to lower its interest rates so that more firms could invest in capital goods in the country. This would increase investment, which in turn would shift aggregate demand to the right and lead to GDP growth. RBI however argues that lowering the interest rates could cause inflation to go up, which in turn would have a great effect on India's lower class citizens. The RBI also argues that interest rates are not very high at the moment, and blame the lack of investment in 'bad governance and lack of reforms'. If the RBI lowered the interest rates and investment did not increase much as they argue, while inflation goes up, many poor people would suffer in the process as they wouldn't be able to buy as many essential goods such as food. This would cause a movement along the aggregate demand curve as price level goes up. On the other hand, from an investor's perspective this would be the best way to generate economic growth, which would benefit the country as a whole if it led to more investment on capital goods.

Investors in India are asking the Reserve Bank of India (RBI) for lower interest rates, so that more can be invested in order to accelerate the country's growth rate (which has been decelerating). However, the RBI is concerned that this could lead to an increase in inflation (which is already high) as AD would increase, causing the country to produce beyond its full level of employment, meaning that price levels would raise more than RGDP proportionally (demand pull inflation). The RBI believes that people are more concerned with inflation as it causes the price of food to go up, affecting poor families. However, there is a possibility that growth is of more importance to Indians when looking at the country's economic performance. Other factors such as an increase in oil prices and a poor-monsoon could drive food prices even higher. As result the Indian RBI must be very cautious whether it will be worth lowering interest rates.