Ten Core Macroeconomic Truths

Throughout our investigation into real world macroeconomics, we will continually remind you of these truths. Take them with you and try to understand them – they are the key to being an A* student.

1. If there isn’t enough aggregate spending in the economy you can’t have economic growth or full employment. The issue is whether the market, left alone, can produce it. See Macroeconomic Core Concept 1.

2. The Balance of Payments (overseas sector) always sums to zero. So current account deficits must be matched by capital account surpluses.

3. Attempts by Governments to manipulate world markets invariably fail (China 2015, UK 1992). Such failures are expensive.

4. Domestic sovereignty in economic affairs can never be perfect – world economies are interdependent and when America or China sneezes, the world catches cold.

5. If you want a universal regressive tax, unleash accelerating inflation.

6. Corrupt economies cannot be as successful as honest ones – the transaction costs are too high.

7. Nothing is as successful in influencing consumer expenditure decisions as relative prices. This is the argument for taxes on tobacco and alcohol.

8. Redistribution of income will always stimulate growth – because the marginal propensity of the poor to consume is so much greater than the rich.

9. When countries trade according to the laws of comparative advantage, everyone gains. It is a win-win situation. Conversely, in an era of protectionism, everyone loses. So there is always an economic gain in co-operation (despite the fact that we are competing).

10.  In the long-run, productivity growth is almost all that matters.