IJC_H2_ECONS_Case2_SuggestedSolutions

Question 2 Differing Policy Responses to Anaemic Economic Growth Table 1: Unemployment Rate (%) 2006 2007 2008 2009 2010 2011 2012 China 4.1 4 4.2 4.3 4.1 4.1 4.1 Japan 4.1 3.8 3.9 5.1 5 4.6 4.3 United Kingdom 5.5 5.4 5.7 7.7 7.9 8.1 8.0 Table 2: Real GDP Growth (%) 2006 2007 2008 2009 2010 2011 2012 China 12.7 14.2 9.6 9.2 10.5 9.3 7.7 Japan 1.7 2.2 -1.0 -5.5 4.7 -0.5 1.5 United Kingdom 2.8 3.4 -0.8 -5.2 1.7 1.1 0.3 Table 3: Inflation Rate (%) 2006 2007 2008 2009 2010 2011 2012 China 1.5 4.8 5.9 -0.7 3.3 5.4 2.7 Japan 0.2 0.1 1.4 -1.3 -0.7 -0.3 -0.0 United Kingdom 2.3 2.3 3.6 2.2 3.3 4.5 2.8 Source: IMF & World Bank Figure 1: Bank of England Interest Rates (%) Source: Bank of England 0 1 2 3 4 5 6 7 03-Jan-06 03-Jan-07 03-Jan-08 03-Jan-09 03-Jan-10 03-Jan-11 03-Jan-12

2 Extract 1: Creeping protectionism in EU trade policy Developing countries stand to lose out from trade reforms that are pushing the EU towards more protectionist policies, according to a report by the Overseas Development Institute (ODI). The first reform of the Generalised System of Preferences 1 (GSP) in 30 years, said the report, will see richer developing countries such as India and Vietnam lose trade concessions of up to €257m (£201m). Since 1971, the GSP has ensured that exporters from developing countries pay lower duties on some or all of what they sell to the EU, giving them vital access to European markets. With reform of the GSP, the EU is likely to impose more trade barriers on a range of products and countries where there isn't a reciprocal free-trade agreement with the union. "Upper-middle-income countries will still be eligible for preferential access to the EU market, but only if they agree to free-trade agreements, not by virtue of their WTO status as developing countries," said Stevens. The new EU trade policy also has a glaring omis sion, the EU's common agricultural policy, in which European farmers receive €50bn in subsidies. Such payments and export subsidies aimed at boosting the production and income of EU farmers tend to reduce world prices and the attractiveness of the European market for developing countries. "Designing a trade strategy in times of economic and financial crisis always carries a risk, and there will inevitably be winners and losers," said Dirk Willem te Velde, head of the ODI's international economic development group. "The clear protectionist trend in the EU's new strategy will not only damage the developing world, but also European economies and consumers." Source: www.theguardian.com, 27 Jul 2012 Extract 2: Japan's economic growth slows Japan's economy grew at a slower-than-expected annualised rate of 1.4% in April-June, adding to worries over the global outlook, as consumer spending flagged following an earlier rebound from last year's earthquake and tsunami. The eurozone crisis also took a heavy toll as feeble demand hit Japan's export sector. Although the p