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

If you backed this up with Oil prices falling and that its cheaper production costs are being passed onto consumers then you're absolutely correct but to say deflation it's self has this effect is quite wrong, 1) you assume that consumers behave rationally 2) you must ask why are prices in the economy falling? Is it demand side or supply side where the output gap is bigger. both involve stimulating aggregate demand so both require demand side policies unless it's caused by left shift in LRAS which is quite unlikely since there hasn't been a recession (other than 08-09), and even if it did its still likely to be demand side like 2008 was

It was due to oil prices falling, said in extract A

Oh yes, I remember.

You are perfectly correct then, to say that SRAS would increase (reduced cost push, and demand-pull less likely) - I said that myself.
As changes in factors of production are 'supply side shocks' which affect SRAS.

I thought that you were talking about interest rates with regard to AS - my mistake.

Thank you! I'm starting to believe that you're better than my teachers 😅

someone give the answers for section A

WHAT WAS THE CLAIMANT ACOUNT ONE?

Basically calculates the number of unemployed people claiming job seekers' allowance or unemployment-related benefits

Oh, you're talking about the question which asked "which of these would result in a decrease in claimants" and I said that an increase in workforce would reduce the number of claimants, as less people will be seeking benefits

Prices are not cheaper.

If all prices in the UK economy decrease (including everyone's wages) consumers do not find that anything is 'cheaper' in the sense you have described.
However foreign consumers will find that buying UK goods are cheaper, as long as their currency is not also deflating.

It's not that the MPC will be unable to control interest rates. They can control interest rates as much as they want (unless you are discussing the fact that the base rate may not cause high street interest rates to fall due to low bank confidence and financial health?). The issue is that once they make interest rates 0% (or 0.5% in extract), there is not much more they can do (besides QE). A liquidity trap is faced.

And your point about interest and AS is not economically correct.
Interest rates are a form of monetary policy. And therefore are demand-side only. I also, don't quite understand your reasoning behind deflation causing costs of production to be reduced? (Unless you are referring to depreciation of the exchange rate?)
(Although interest rates may affect investment, and investment affects AS we do not say that interest rates cause AS to shift - Also investment affects LRAS, not Short)

I hope this helps. Sorry that I have just ripped apart your analysis

ah yeah that's it cheers buddy. Pretty sure I talked about the standard of living going down, the negative effect on the circular flow of income for the first one. Second I talked about an increase in competitiveness then evaluated with the fact that we only export high end services/technology etc. then said the negative effect that it would have on consumer consumption, they would wait for prices to fall further etc.

Yeah I was thinking that at first, but then if you really need the money you wouldn't really mind going through the interview.

But it would serve to put people off - increasing the size of the workforce only creates more unemployment if nothing changes

I agree. I put the interview one too! 👍🏿

Do you not think that he might be referring to the fall of oil prices - leading to the costs of production falling. It is a transmission mechanism after all 🤗

How does increasing the size of the workforce lead to more unemployment?