K17EA MACROECONOMICS & GLOBAL

ECONOMIC ISSUES
Topic 8 : Macroeconomic Issues and Anaysis

•Global issues faced by EU

•Global issues faced by UK
•Global issues faced by Malaysia
K17EA MACROECONOMICS & GLOBAL
ECONOMIC ISSUES

Topic 8 Tutorial
 Learning Objective(s)

Topic 8 Learning objective(s) checklist

Macroeconomic
Issues and Identify and examine the global issues
Analysis faced by European Union (EU).
Identify and examine the global issues
faced by United Kingdom (UK).
Identify and examine the global issues
faced by Malaysia.

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 Global issues faced by European Union (EU)
EU Enlargement

 What is European Union?

 What is Eurozone?

 Reasons behind Eurozone Crisis

 Europe’s response to the crisis

 GREXIT

 BREXIT
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 What is European Union?

 The European Union was founded in 1957.

 The European Union is a free trade area of 28 countries and over 500 million consumers.
 The European Union (EU) is made up of 27 member states, but only 17 of these nations
use the single currency, known as the euro.
 These countries using the euro make up the eurozone: Austria, Belgium, Cyprus, Estonia,
Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands,
Portugal, Slovakia, Slovenia, and Spain.
 Euro area: Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, Spain.
 EU Member States obliged to adopt the euro eventually: Bulgaria, Czech Republic,
Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Sweden.
 EU Member States with an opt out from adopting the euro: Denmark, United Kingdom.
 28th – Croatia 2013.

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EU Enlargement

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Global issues faced by European Union (EU)

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Economic and Monetary Union

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What are the benefits of the euro? And the costs?

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 What is Eurozone?

• The eurozone refers to an economic and geographic region consisting of all the
European Union (EU) countries that incorporate the euro as their national currency.

• The formation of a common economic and monetary union consisting of a central

banking system, a common currency, and a common economic region, the eurozone.

• As of Aug. 2020, the eurozone consists of 19 countries in the European

Union (EU): Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece,
Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia,
Slovenia, and Spain.

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 What is Eurozone?
The Eurozone Crisis Reasons behind Eurozone Crisis

• The European sovereign debt crisis was a  One-size-fits-all monetary policy

period when several European countries
experienced the collapse of financial
institutions, high government debt, and  Misplaced confidence and assessment of
rapidly rising bond yield spreads in risks
government securities.

 Economic divergence and trade

• The European sovereign debt crisis began in
2008 with the collapse of Iceland's banking imbalances
system.

• The crisis peaked between 2010 and 2012.

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Europe’s response to the crisis

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• "Greek exit," refers to Greece's potential
withdrawal from the Euro-zone, and a return
to the Drachma as its official currency
instead of the Euro.
• The Greek government rejected Grexit and
instead received multiple rounds of bailout
loans from the euro-zone in addition to
implementing austerity measures.
• As of 2020, Greece remains in the
eurozone, with help from bailout loans in
2010, 2012, and 2015.
GREXIT
Solution: Austerity and Bailouts
 Greece's austerity measures:
• Cut public-sector wages, raised the minimum retirement age,
and increased fuel prices.
• Reduced public-sector pay further, cut Greece’s minimum
wage, reduced pension payouts, gutted defense spending, and
raised taxes.
• Unemployment rose to nearly 28% in the fall of 2013, far
higher than the 11% average for the Euro-zone as a whole.
Greek Recovery
• The economic and financial uncertainty in Greece
has improved markedly since the worst days of the crisis.
• In Aug. 2018, government officials announced the country had
successfully exited the last of its bailout programs.
• Ending the bailout programs allowed Greece to begin
selling 10-year bonds in 2019 for the first time in nine years.
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 Global issues faced by United Kingdom(UK)

Double Dip Receission in UK

 What is Double Dip Recession?

 Causes of Double Dip Recession in UK

 What is Quantitative Easing?

 What is Austerity programme in UK?

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 Global issues faced by United Kingdom(UK)
What is Double Dip Recession? Double Dip Receission in UK

• "A double-dip recession refers to a recession

followed by a short-lived recovery, followed by
another recession. This happens when gross
domestic product (GDP) growth slides back to
negative after a quarter or two of positive growth.

• A double-dip recession must come after an initial

period of general economic decline. Essentially, the
country's GDP slides from negative to positive and
eventually back to negative.

• If a country experiences a double-dip recession, the

impact on the economy will be worse than the initial
recession.

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 Global issues faced by United Kingdom(UK)
Causes of Double Dip Recession in UK

1. Credit Crunch.
2. Balance Sheet Recession.
3. Budget Deficits
4. Housing Markets

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 Global issues faced by United Kingdom(UK)
What is Quantitative Easing?

• Quantitative easing (QE) is an unconventional form of monetary

policy where a Central Bank creates new money electronically to buy
financial assets, like government bonds.

• This process aims to directly increase private sector spending in the

economy and return inflation to target.

• The aim of undertaking asset purchases was the same as a cut in

Bank Rate to stimulate nominal spending and thereby
domestically generated inflation, so as to meet the Monetary
Policy Committee (MPC)’s 2% inflation target in the medium term.

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Global issues faced by United Kingdom(UK)
Quantitative Easing: How it works

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Global issues faced by United Kingdom(UK)
Potential Problems of Quantitative Easing

1. Inflation.

2. Depreciating Exchange Rate.

3. Potential Bond Bubble.

4. Inequitable Distribution.

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 Global issues faced by United Kingdom(UK)
What is austerity programme in UK?

1. Definition: ‘difficult economic conditions created by government measures to

reduce public expenditure’.

2. The austerity programme was introduced by the Conservative and Liberal

Democrat coalition government in 2010.

3. There are automatic stabilisers in the economy, which means that the deficit
will rise and fall as it contracts and expands.

4. During austerity, the government will usually try to reduce the effect of these
automatic stabilisers, which critics have said could lead to the overall deficit
becoming higher.

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 Global issues faced by United Kingdom(UK)
What is austerity programme in UK?
Case study: Effectiveness of Austerity
1. Definition: ‘difficult economic programme in UK
conditions created by government
measures to reduce public
expenditure’.

2. During austerity, the government will

usually try to reduce the effect of
these automatic stabilisers, which
critics have said could lead to the
overall deficit becoming higher.

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 Global issues faced by United Kingdom(UK)
Brexit

• Freedom to work and live between the UK

and the EU also comes to an end, and in
2021, UK nationals will need a visa if they
want to stay in the EU more than 90 days in a
180-day period.

• Now that it's no longer in the EU, the UK

is free to set its own trade policy and can
negotiate deals with other countries.

• Talks are being held with the US, Australia

and New Zealand - countries that currently
don't have free trade deals with the EU.

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Global issues faced by United Kingdom(UK)
Economic effects on UK after BREXIT

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 Global issues faced by Malaysia

 The Impact of Global Financial Economic

Crisis 2008/09 on Malaysia
 Bank Negara Malaysia’s monetary policy
interventions
 Malaysia: Economic Impacts of MCO due
to Covid -19 Pandemic
 Malaysia Budget 2021

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Global issues faced by Malaysia
TWELTH MALAYSIA PLAN (2021 to 2025)

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Global issues faced by Malaysia

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 Global issues faced by Malaysia

Some highlights from the Malaysia Budget 2021

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K17EA MACROECONOMICS & GLOBAL ECONOMIC
ISSUES

Topic 8 Tutorial
 Section A: Multiple-Choice Questions

1. When did euro coins and notes come into circulation?

a) 1 January 2002
b) 1 June 1998
c) 1 July 2003
d) 7 December 1999

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 Section A: Multiple-Choice Questions

2. When did Greece join European Economic Community?

a) 1981
b) 1988
c) 1987
d) 1989

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 Section A: Multiple-Choice Questions

3. Which treaty established European Union?

a) Lisbon Treaty
b) Maastricht Treaty
c) Treaty of Rome
d) Treaty of Nice

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 Section B: Short Answer Questions

1. Discuss the advantages of Monetary Union in EU. (6 marks)

Outline: 3 points x 2 marks = 6 marks

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 Section B: Short Answer Questions

1. Discuss the advantages of Monetary Union in EU. (6 marks)

• eliminating conversion costs

• increased competition
• elimination of exchange-rate uncertainty between members
• lower inflation and interest rates
• increased inward investment

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 Section B: Short Answer Questions

2. In October 2015, a Bank of England Report concluded that EU

membership made the UK a more open and dynamic economy.
However, the Eurozone is still experiencing relatively low rates
of economic growth.

a) Discuss whether EU membership makes the UK economy more

open and dynamic.
(10 marks)

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 Section B: Short Answer Questions

2. In October 2015, a Bank of England Report concluded that EU

membership made the UK a more open and dynamic economy.
However, the Eurozone is still experiencing relatively low rates
of economic growth.

a) Discuss whether EU membership makes the UK economy more

open and dynamic.
(10 marks)
Outline: Advantages and Disadvantages (must be both)
Ad: 2 pointsx2.5m= 5 marks, Disad: 2 pointsx2.5m=5 marks • 35
 Section B: Short Answer Questions

a) Discuss whether EU membership makes the UK economy more

open and dynamic.
(10 marks)
Advantages:
• Greater volume of trade due to single market which eradicates trade
barriers between member states (1) This increases the potential for UK
firms to gain access to the market of all member states with no barriers.(1)
Over 50% UK exports are sold into the EU. (1)
• Increased competition may encourage greater efficiency in UK firms (1)
this forces UK firms to be more dynamic because they have to respond
quickly to competitive pressures. (1) • 36
 Section B: Short Answer Questions

• Free movement of labour

• Free movement of intellectual property
• Inward investment
• Larger market in which to sell
• Greater economies of scale

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 Section B: Short Answer Questions

Disadvantages:
• Distorts trade with the rest of the world as UK focuses on EU (1) whilst
the Common External Tariff prevents other countries fairly trading with
the UK.(1) This harms UK consumers and businesses.(1)
• Cost of membership to the UK taxpayer .(1) The tax revenue could be
used to invest in UK infrastructure which would improve UK
productivity.(1)
• Red tape and bureaucracy adds to business costs.(1)

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