Evaluate the usefulness of real GDP as a measure of a country's living standards.
2.1.1
GDP misleads- GDP grew about 25% in 2015 as firms moved IP to Ireland; incomes did not.
- GDP €602 bn vs GNI* €334 bn in 2025.
- GDP +8.0% in 2025 vs consumer spending +2.6%.
Still useful- Most countries' GDP is not distorted this way.
- Alternatives (GNI*, MDD) still show strong growth.
- GDP data are comparable across countries and frequent.
ChainMultinational moves IP to Ireland → output and exports booked in Ireland ↑ → GDP ↑ → but profits flow to foreign owners → national income and living standards barely change.
JudgmentGDP is a poor guide where foreign ownership and profit outflows are large. GNI (or GNI*) per head, adjusted for prices, is better for comparing living standards; HDI adds health and education.
Assess the benefits and costs of foreign direct investment for a host economy.
4.1.1 · 4.3
Benefits- 312,400 direct jobs in IDA client firms (2025), often high-wage.
- Corporation tax €34.7 bn in 2025, funding surpluses and services.
- Skills, technology and supplier clusters (Galway medtech).
Costs- Profits repatriated: GNI* only 55% of GDP.
- Tax concentration: 3 firms pay 46% of CT.
- Pressure on housing, grid and wages for domestic firms.
ChainFDI ↑ → I ↑ and later X ↑ → AD ↑ and new capital raises LRAS → jobs and tax revenue ↑ → but profit outflows reduce the multiplier.
JudgmentNet benefits are clearly positive for Ireland, but they depend on linkages to local firms and on footloose firms staying. The more concentrated the FDI, the bigger the risk.
Evaluate the costs and benefits for a country of membership of a monetary union.
4.1.8 · 4.1.5
Benefits- No exchange rate risk with eurozone partners; lower transaction costs.
- Attractive base for US firms selling into the euro area.
- ECB and EU funds helped in the 2010 bailout.
Costs- ECB rates too low in the 2000s fuelled a property bubble.
- No devaluation in 2010: wages and prices had to fall instead.
- 2026: ECB raises rates for all, whatever Ireland's cycle.
ChainOne interest rate for all → fast-growing Ireland gets rates that are too low → cheap credit → house price bubble → bust with no monetary tool to respond.
JudgmentBenefits outweigh costs when a member's cycle is in line with the core and fiscal policy is used to cool booms. Ireland's experience shows the costs when it is not.
Discuss the causes and consequences of a banking crisis.
4.4.2 · 4.4.3
Causes- Cheap credit and a property bubble; banks lent heavily to developers.
- Weak regulation; funding from wholesale markets abroad.
- 2008 blanket bank guarantee moved bank losses onto the state.
Consequences- Deficit 32% of GDP in 2010; €85 bn bailout.
- Unemployment near 16%; emigration; house prices roughly halved.
- Tighter rules after: mortgage lending limits, ECB supervision.
ChainHouse prices fall → developers default → bank losses wipe out capital → credit crunch: lending ↓ → I and C ↓ → recession; state rescues banks, debt ↑.
JudgmentA financial crisis turns private debt into public debt. The guarantee probably made Ireland's crisis worse; tighter macroprudential rules since 2015 aim to prevent a repeat.
Evaluate the use of austerity to reduce a budget deficit.
4.5.3 · 2.6.2
Worked in Ireland- Deficit fell and Ireland left its bailout in 2013.
- Open economy: exports drove recovery, so AD fell less.
- Market confidence and lower bond yields returned.
Costs- Unemployment near 16% in 2012; large emigration.
- Cuts to public investment left housing and infrastructure gaps.
- Greece did similar and saw far deeper falls.
ChainSpending cuts and tax rises → G ↓, disposable income ↓ → AD ↓ via the multiplier → output and jobs ↓, which cuts tax revenue and partly offsets the saving.
JudgmentAusterity hurts least in a very open economy with a strong export sector, where the multiplier is small. Ireland had this; Greece did not.
Assess whether a low rate of corporation tax benefits an economy.
4.5.2 · 2.6.3
Yes- Drew in US multinationals for decades.
- Low rate, big base: CT receipts tripled from 2019 to 2025.
- Fund surpluses and saving for the future.
Not necessarily- Revenue depends on a handful of firms.
- Partly reflects profit-shifting, which other countries are acting against.
- 15% global minimum narrows the advantage.
ChainLow CT rate → higher post-tax return on investment → FDI ↑ → jobs, exports and taxable profits booked in Ireland ↑ → total CT revenue ↑ (Laffer-type effect).
JudgmentIt worked for a small country able to attract profits from larger ones. It cannot be copied by everyone, and its future depends on international tax rules.
Evaluate the likely impact of tariffs imposed by a major trading partner.
4.1.6
Big impact- US is the largest export market; pharma is the largest export.
- Firms may move production to the US to avoid tariffs.
- CT revenue could fall if profits move.
Smaller impact- Branded medicines have few substitutes: low PED.
- Exports rose 90% to the US in 2025 as firms stockpiled.
- Modified domestic demand still grew 4.7% in 2025.
ChainUS tariff on EU pharma → Irish-made drugs dearer in US → firms shift some production to US plants → Irish exports, investment and CT receipts ↓.
JudgmentImpact depends on PED, on how long tariffs last and on firms' location choices. The GDP effect looks big; the effect on Irish jobs and incomes is much smaller.
Evaluate policies to tackle a shortage of affordable housing.
1.2 · 1.4
Policies- Direct state building of social and affordable homes.
- Caps on annual rent rises.
- Grants to first-time buyers.
Problems- Completions 36,284 (2025) vs need of about 50,000.
- Buyer grants raise demand against inelastic supply.
- Rent caps may deter landlords and new rental supply.
ChainPopulation +1.2% a year and high incomes → demand for housing ↑ → supply inelastic (planning, costs, labour) → prices and rents ↑ → homelessness record of 17,885.
JudgmentOnly measures that raise supply tackle the cause. Ireland has the money; the limits are planning, workers, water and grid connections.
Discuss whether a government should save rather than spend a revenue windfall.
4.5.3 · 4.5.4
Save- CT is volatile and concentrated; may not last.
- Ageing will raise pension costs.
- Spending more at full employment risks inflation.
Spend- Big gaps in housing, grid and water.
- Investment can raise LRAS and ease capacity limits.
- Debt still ~60% of GNI*: paying it down is also an option.
ChainWindfall spent on current items → AD ↑ at full employment → inflation and wage pressure ↑ → when windfall stops, deficit returns → painful cuts later.
JudgmentSave the windfall part and spend the sustainable part, preferably on capital investment that lifts capacity. Norway's oil fund is the model.
Assess how an economy can recover from a deep recession without devaluing its currency.
4.1.9 · 2.6.3
Internal devaluation worked- Wage and price falls restored competitiveness after 2010.
- Flexible labour market and emigration eased unemployment.
- Exports from FDI firms recovered fast.
Limits- Falling wages raise the real burden of debt.
- Slow and painful: unemployment stayed high for years.
- Relied on a strong export base that Greece lacked.
ChainWages and costs fall relative to trading partners → relative unit labour costs ↓ → exports more price competitive → X ↑ → AD and employment ↑.
JudgmentInternal devaluation can work in a small open economy with mobile labour and a strong export sector. It costs far more where exports are a small share of GDP.