Edexcel AS Economics (New Spec) Unit 2 - 23rd May 2016

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Original post by Beccatenney

thankyou so much that has really helped. Do they give you the mpt/mpi/mps or the mpw?

Yes, if they are going to ask, they will give you these factors and ask you to calculate the multiplier.

I have attached some practice multiplier questions from the specimen paper.

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Reply 43

Original post by Bruce267099

And that reduces aggregate supply right???

Correct, causes the Short Run AS Curve to shift left.

Reply 44

Diastal

6

How would you define MPC if the question is a 3 marker?

Reply 45

Original post by Diastal

How would you define MPC if the question is a 3 marker?

Marginal propensity to consume is the amount that is consumed from a change in income. i.e the proportion of an increase in income that is spent.

It is calculated by: MPC = Change in Consumption/Change in Income

(it is affected by interest rates, confidence and wealth effect)

Reply 46

Original post by Diastal

How would you define MPC if the question is a 3 marker?

MPC also know as marginal propensity to consume is the porportion of one additional pound that is consumed. Apply a figure from the extract and explain that this is being spent instead of being withdrawn.

Reply 47

OP

Original post by Diastal

How does full employment conflict with other macroeconomic objectives?

Inflation: The general price levels will increase when there is greater employment as people will consume more due to the increase in disposable income from an increase in people receiving wages. Therefore, since consumption is a component of aggregate demand, this will cause an increase in price levels in the economy.
However, you could mention confidence and the state of the economy as evaluation.

Trade balance: when there is an increase in price levels in the economy, this means that the goods and services produced by the country are less price competitive and thus there will be lower international demand
However, you could say that the quality of goods and services produced and short/Long run factors may mean that price levels have little or no effect on the level of exports from the country in point.

Environmental Protection: full employment means the economy is making full use of their factors of production. Therefore, output increases and when production increases, negative externalities like pollution increases, which decreases the quality of life of the people in said country.
However, you could say that it depends on whether the firms are making use of green technology.

Reply 48

Original post by harryleavey

Correct, causes the Short Run AS Curve to shift left.

Thank you! :biggrin:

Reply 49

OP

Original post by harryleavey

This is correct. However the other way that exchange rates affect inflation is due to the increasing costs of production resulting from the increased production costs from imports rising in price (depreciation)

Which is - importing cost push inflation!

Reply 50

Original post by rosemondtan

Which is - importing cost push inflation!

Yes. Higher price of imports is cost-push inflation

Reply 51

Original post by rosemondtan

Inflation: The general price levels will increase when there is greater employment as people will consume more due to the increase in disposable income from an increase in people receiving wages. Therefore, since consumption is a component of aggregate demand, this will cause an increase in price levels in the economy.

The reason for the increase in price levels when there is full employment is explained by the Philips Curve Trade off.

If more people are employed, the reason for inflation is mainly due to firms having to pay workers more in order to keep them. Similarly, if there are less available workers, a worker is likely to demand higher wages due to the reduced supply of labour. This means that wages rise, and cost-push inflation is experienced.

Your demand-pull analysis is correct. But the Philips curve relationship is more widely accepted as the explanation to this conflict. The Philips curve is also written as the explanation on the Edexcel specification

(edited 7 years ago)

Reply 52

Original post by harryleavey

The reason for the increase in price levels when there is full employment is explained by the Philips Curve Trade off.

If more people are employed, the reason for inflation is mainly due to workers having to pay workers more in order to keep them. Similarly, if there are less available workers, a worker is likely to demand higher wages due to the reduced supply of labour. This means that wages rise, and cost-push inflation is experienced.

Your demand-pull analysis is correct. But the Philips curve relationship is more widely accepted as the explanation to this conflict. The Philips curve is also written as the explanation on the Edexcel specification

I finally understand the phillips curve. :biggrin:

Reply 53

Original post by Bruce267099

I finally understand the phillips curve. :biggrin:

That was meant to say:
If more people are employed, the reason for inflation is mainly due to firms having to pay workers more in order to keep them.

Reply 54

OP

Original post by harryleavey

The reason for the increase in price levels when there is full employment is explained by the Philips Curve Trade off.

If more people are employed, the reason for inflation is mainly due to firms having to pay workers more in order to keep them. Similarly, if there are less available workers, a worker is likely to demand higher wages due to the reduced supply of labour. This means that wages rise, and cost-push inflation is experienced.

Your demand-pull analysis is correct. But the Philips curve relationship is more widely accepted as the explanation to this conflict. The Philips curve is also written as the explanation on the Edexcel specification

Yup that's very true, but I think that what you're referring to is a shift of the Phillips curve (a shift is caused by cost-push inflation, yes) but a movement along the Phillips curve is due to demand-pull inflation, which makes both points equally valid, depending on what you're analysing

Reply 55

Original post by rosemondtan

Yup that's very true, but I think that what you're referring to is a shift of the Phillips curve (a shift is caused by cost-push inflation, yes) but a movement along the Phillips curve is due to demand-pull inflation, which makes both points equally valid, depending on what you're analysing

You could say that. Although I don't think it is relevant to the trade off.

The single Philips curve alone explains the trade off.

The curve itself displays how inflation is affected by unemployment. It is not necessary to analyse shifts of the Philips curve in this instance

(edited 7 years ago)

Reply 56

OP

Original post by harryleavey

You could say that. Although I don't think it is relevant to the trade off.

The single Philips curve alone explains the trade off.

Exactly - the single Phillips curve alone has nothing to do with cost push inflation. The questions states that full employment is already achieved, which means that there is no additional unit of labour introduced so costs of firms should stay the same. Therefore, the only result of this would be demand pull inflation (which is explained by the movement along the single Phillips curve)

Reply 57

Beccatenney

7

so far ive got:
policies to reduce inflation
causes of increased inflation
effect of increased inflation
policies to control inflation
effects of economic growth
effect of increase in interest rates
reasons for uk current account deficit
effect of a fall in exchange rate
role of supply side policies (with examples)
role of government expenditure
policies to maintain a stable economy
importance of productivity
explain role of fiscal policy
explain role of monetary policy

does anyone have any more examples of essay titles???

Reply 58

Original post by rosemondtan

Exactly - the single Phillips curve alone has nothing to do with cost push inflation. The questions states that full employment is already achieved, which means that there is no additional unit of labour introduced so costs of firms should stay the same. Therefore, the only result of this would be demand pull inflation (which is explained by the movement along the single Phillips curve)

The question was the trade offs of unemployment with inflation. I did not notice anything about full employment being already achieved??
Hence why I feel the Philips curve alone explains the trade off.

I think we both know what is going on here anyway! :smile:

Hopefully this clears things up @Diastal

Reply 59