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PRINCIPLES OF ECONOMICS
Chapter 32 Macroeconomic Policy Around the World
PowerPoint Image Slideshow
Job fairs and job centers are often available to help match
people to jobs. This fair took place in the U.S. (Hawaii), a highincome country with policies to keep unemployment levels in
check. Unemployment is an issue that has different causes in
different countries, and is especially severe in the low- and
middle-income economies around the world.
COUNTRY CLASSIFICATION
Developing Countries: Nations in Africa, Asia
(except Japan), and Latin America.
Developed Countries: Nations in North America
(except Mexico) and Western Europe plus
Australia, Japan, and New Zealand.
Transitional Countries: Nations of the former
Soviet Union and Eastern Europe that are moving
from socialism to capitalism.
COUNTRY CLASSIFICATIONS
Low income countries:
Per capita income up to $1,025
Middle income countries:
Per capita GDP $1,025 to $12,475
High income countries:
Per capita GDP more than $12,475
COUNTRY CLASSIFICATIONS
Low-income countries account for
• less than 1% of global income
• 18.5% of the world population
Middle-income countries account for
• 31.1% of global income
• 69.5% of world population
High-income countries account for
• 68.3% of global income
• 12% of the world’s population.
COUNTRY CLASSIFICATION
COUNTRY CLASSIFICATION
There is a clear imbalance in the GDP across the world.
North America, Australia, and Western Europe have the
highest GDPs while large areas of the world have
dramatically lower GDPs.
GROWTH POLICIES OF HIGH INCOME COUNTRIES
Japan’s Prime Minister
used fiscal and monetary
policies to stimulate his
country’s economy, which
has worked in only the
short run.
GROWTH POLICIES OF HIGH INCOME COUNTRIES
• Have fiscal policy focus on investment in human
capital, social capital, and technology
• Keep inflation and unemployment low
• Reform tax and spending structures
• Keep independent central banks for steady growth
of the money supply to support economic growth
• Eliminate federal deficit and reduce national debt
• Reduce over-consumption of food and fossil fuel
GROWTH POLICIES OF MIDDLE INCOME COUNTRIES
• Maintain high saving rates
• Have fiscal policy focus on investment in human
capital, social capital, and technology
• Continue to emphasize export promotion
• Reform tax structure
• Continue to adopt “appropriate” technology
• Reduce government control and rely more on
market system
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GROWTH POLICIES OF LOW INCOME COUNTRIES
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Alleviate poverty
Sustain economic growth and income equality
Provide civil liberty and freedom to choose
Invest in human capital (education, nutrition, health)
Control population growth (education, family planning)
Invest in social capital (housing, electricity, drinking
water, schools, transportation, communication)
Provide more capital per worker hour
Adopt appropriate technology
Improve trust and honesty (eliminate corruption)
Improve the socio-economic status of women
Rely of democracy and market-orientation
Achieve peace and harmony (no need for big military)
Improve tax and spending structures
Have independent central banks
ECONOMIC CHALLENGES LOW INCOME COUNTRIES
In low-income countries, all income is often spent on necessities for
living and cannot be accumulated or invested in physical or human
capital. The students in this photograph learn in an outside
“classroom” void of not only technology, but even chairs and desks.
POLITICAL CHALLENGES LOW INCOME COUNTRIES
Low-income countries, like those in this chart, share
common elements such as political factionalism,
infighting, and corruption.
TYPES OF UNEMPLOYMENT ACROSS COUNTRIES
High income countries:
• Mostly cyclical due to recessions
Middle income countries
• Mostly structural due to technological change
Low income countries
• Both cyclical and structural
• Lack of job creation policy
APPROPRIATE TECHNOLOGY
Modern technologies, such as solar-power and Wi-Fi, enable
education to be delivered to students even in remote parts of a
country without electricity. These students in Ghana are sharing a
laptop provided by a van with solar-power.
Economic impacts on middle and low income
countries
• Slow economic growth
• Declining exports
• Reduced foreign investment and foreign aid
inflow
• Declining stock markets and rising capital
outflow
• Inability to pay back debt
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GLOBAL FINANCIAL CRISIS
GLOBAL FINANCIAL CRISIS
The economic conditions in Greece have deteriorated
from the Great Recession such that the government had
to enact austerity measures, cutting wages and increasing
taxes on its population. Massive protests are but one
byproduct.