Cab Q (1 Viewer)

[MMchen]

Can someone please help mne with these two questions from the CSSA paper..


explain the relationship between the current acc balance and the net foreign liabilities.


explain two reasons why govt would use a subsidy instead of a tariff to protect domestic industries.

thanks alot

 

[Damien]

In the marking criteria you have to state what Net Foreign Liabilities are (i.e. Net Foreign Debt + Net Foreign Equity), and then explain that the Net Income component of the Current Account contains interest payments of Net Foreign Liabilities.
(2 Marks)

Government would prefer a subsidy because:

i) Subsidies are not inflationary.
ii) They are a Government expenditure, and will be removed when not necessary.
iii) Guarantees market share, whilst a tariff only raises price irrespective of elasticity of demand.

 

[numg]

explain two reasons why govt would use a subsidy instead of a tariff to protect domestic industries.

1. It is more consistent with their policy of freer trade as subsidies are less likely to be kept longer than necessary. this is because subsidies add to government expenditure while tariffs generate revenue for the government.

2. Tariffs only support protected industries internally and they are still uncompetitive in global markets. Subsidies on the other hand allow the industry to maintain their artificial competitiveness in global markets as well, allowing greater exports and the establishment of the industry in global markets.

damn! non-inflationary is a good one. These where all i could think of...

 

[Exeter]

also for the first one, state that a higher cad tends to lead to greater foreign debt and hence liability and vice versa

 

[MMchen]

cool....
thanks alot buddis..

 

[2late]

Originally posted by Damien
Government would prefer a subsidy because:

i) Subsidies are not inflationary.

What do you mean by susbisidies are not inflationary??

 

[MMchen]

subsidies are non inflationary...because tarriffs increase the prices of foreign good..therefore the higher costs are pass onto consumers..
and higher cost = inflation

 

[2late]

Ohh i get it now.. Thnx mate