[megan.cl]

Do i need to know about the Monetary Policy Commitee? Because in my text book it says about about the minutes from the MCP meeting being published and what they contain, e.g. costs and prices, financial markets etc. Do i need to learn this ?

[xXACEXx]

Hey guys are the benefits of globlisations the same as free trade?
Such as increased exports, lower prices, Economies of scale, competition etc.

Globalisation and free trade seem very similar and interlinked to me

[_becca]

(Original post by sweetascandy)
Wow, you're so awesome at this!

I'm attempting the following essay question:
To what extent do you regard a public sector expansion as beneficial to the UK economy?

I initially thought that by public sector expansion, they meant an increase in G. But that may not be true. I'm thinking an expansion in public sector services, such as provision of public goods? But I'm really struggling to make a point out of that. Help?

Hmmm.. Well what springs to mind for me is:

Expansion not beneficial - public sector jobs e.g. NHS nurse. Link to current situation austerity measures - public sector jobs being cut, wages frozen. This counts as public sector contraction as the gvt uses public sector to reduce budget deficit (forecast £163bn/11.1% GDP in 2012). These contractionary measures are good as they help the economy reduce the debt - debt is bad as we could go down in credit rating, interest payments are higher, causing more debt - and also reducing the deficit - deficit is bad because we are spending money we don't have. Also reducing budget deficit means gvt has more money to spend on benefits, supply side policies etc.



Public sector expansion is beneficial -
If the gvt were to expand public sector (i.e. create more jobs there such as nurses, teachers), they would have to be spending more. Good from a Keynesian perspective - G part of AD so AD increases. LRAS curve shows that because we are at such low capacity/spare capacity an increase in AD will achieve all 3 objectives of growth, employment with only negligible inflation. Further because our inflation is largely cost push (commodity prices - and these have been decreasing in the past 6 months) gvt may as well increase AD in the hopes of a positive multiplier effect.
Expansion would fit better with MPCs low interest rates (UK in liquidity trap - monetary policy ineffective - so we need an upwards pressure on growth). Otherwise we have exp. monetary policy with 0.5% i/r and QE, expansionary fiscal with cutting 50% tax rate (even though this is mainly political), BUT contractionary fiscal with cutting public sector. Logically we should expand then, otherwise things cancel each other out.

So overall, good from a Keynesian perspective, bad from a Classical. evaluation would be:
: which objective most important? if you think growth and employment, then YES to the question, if inflation, then possibly NO
: it depends where we are in the economy (and since we are nowhere near full employment objectives can all be achieved, meaning no tradeoff)
: depends on confidence, situation in other countries, what other inflationary/growth pressures are - where would we be WITHOUT what gvt has already done?


I can't think of anything else. That answer doesn't have many graphs in except LRAS and SR AD/AS unfortunately x

p.s. so yes, I interpreted the question as public sector jobs and services

[heyama00]

(Original post by xXACEXx)
Hey guys are the benefits of globlisations the same as free trade?
Such as increased exports, lower prices, Economies of scale, competition etc.

Globalisation and free trade seem very similar and interlinked to me

This paper will be hard for me, Globalisation not my strong area.


This was posted from The Student Room's iPhone/iPad App

[Stabilopink]

When an economy is at the natural rate of unemployment is that unemployment purely frictional or is it also structural? I don't think the book is that clear about this.

[Tateco]

(Original post by _becca)
Hmmm.. Well what springs to mind for me is:

Expansion not beneficial - public sector jobs e.g. NHS nurse. Link to current situation austerity measures - public sector jobs being cut, wages frozen. This counts as public sector contraction as the gvt uses public sector to reduce budget deficit (forecast £163bn/11.1% GDP in 2012). These contractionary measures are good as they help the economy reduce the debt - debt is bad as we could go down in credit rating, interest payments are higher, causing more debt - and also reducing the deficit - deficit is bad because we are spending money we don't have. Also reducing budget deficit means gvt has more money to spend on benefits, supply side policies etc.



Public sector expansion is beneficial -
If the gvt were to expand public sector (i.e. create more jobs there such as nurses, teachers), they would have to be spending more. Good from a Keynesian perspective - G part of AD so AD increases. LRAS curve shows that because we are at such low capacity/spare capacity an increase in AD will achieve all 3 objectives of growth, employment with only negligible inflation. Further because our inflation is largely cost push (commodity prices - and these have been decreasing in the past 6 months) gvt may as well increase AD in the hopes of a positive multiplier effect.
Expansion would fit better with MPCs low interest rates (UK in liquidity trap - monetary policy ineffective - so we need an upwards pressure on growth). Otherwise we have exp. monetary policy with 0.5% i/r and QE, expansionary fiscal with cutting 50% tax rate (even though this is mainly political), BUT contractionary fiscal with cutting public sector. Logically we should expand then, otherwise things cancel each other out.

So overall, good from a Keynesian perspective, bad from a Classical. evaluation would be:
: which objective most important? if you think growth and employment, then YES to the question, if inflation, then possibly NO
: it depends where we are in the economy (and since we are nowhere near full employment objectives can all be achieved, meaning no tradeoff)
: depends on confidence, situation in other countries, what other inflationary/growth pressures are - where would we be WITHOUT what gvt has already done?


I can't think of anything else. That answer doesn't have many graphs in except LRAS and SR AD/AS unfortunately x

p.s. so yes, I interpreted the question as public sector jobs and services

Crowding out would be a major point for a question like that.

[Tateco]

(Original post by Stabilopink)
When an economy is at the natural rate of unemployment is that unemployment purely frictional or is it also structural? I don't think the book is that clear about this.

Frictional I believe.

[ninegrandstudent]

Anyone got any practice essays they could share? Bit unsure of my writing technique!

[Alexander94]

(Original post by tarek1)
Production possibility boundary

Is this the PPF (production possibility frontier)

[Stabilopink]

nvm worked it out

[_becca]

(Original post by Tateco)
Crowding out would be a major point for a question like that.

That's to do with consumers' propensity to spend/save, and speculation right? So if taxes decreased they would expect a later increase so don't respond in the theoretical way of spending their now-higher disposable income. And then something to do with bonds.. I never got the bonds bit??

[sweetascandy]

(Original post by _becca)
Hmmm.. Well what springs to mind for me is:

Expansion not beneficial - public sector jobs e.g. NHS nurse. Link to current situation austerity measures - public sector jobs being cut, wages frozen. This counts as public sector contraction as the gvt uses public sector to reduce budget deficit (forecast £163bn/11.1% GDP in 2012). These contractionary measures are good as they help the economy reduce the debt - debt is bad as we could go down in credit rating, interest payments are higher, causing more debt - and also reducing the deficit - deficit is bad because we are spending money we don't have. Also reducing budget deficit means gvt has more money to spend on benefits, supply side policies etc.

Public sector expansion is beneficial -
If the gvt were to expand public sector (i.e. create more jobs there such as nurses, teachers), they would have to be spending more. Good from a Keynesian perspective - G part of AD so AD increases. LRAS curve shows that because we are at such low capacity/spare capacity an increase in AD will achieve all 3 objectives of growth, employment with only negligible inflation. Further because our inflation is largely cost push (commodity prices - and these have been decreasing in the past 6 months) gvt may as well increase AD in the hopes of a positive multiplier effect.
Expansion would fit better with MPCs low interest rates (UK in liquidity trap - monetary policy ineffective - so we need an upwards pressure on growth). Otherwise we have exp. monetary policy with 0.5% i/r and QE, expansionary fiscal with cutting 50% tax rate (even though this is mainly political), BUT contractionary fiscal with cutting public sector. Logically we should expand then, otherwise things cancel each other out.

So overall, good from a Keynesian perspective, bad from a Classical. evaluation would be:
: which objective most important? if you think growth and employment, then YES to the question, if inflation, then possibly NO
: it depends where we are in the economy (and since we are nowhere near full employment objectives can all be achieved, meaning no tradeoff)
: depends on confidence, situation in other countries, what other inflationary/growth pressures are - where would we be WITHOUT what gvt has already done?


I can't think of anything else. That answer doesn't have many graphs in except LRAS and SR AD/AS unfortunately x

p.s. so yes, I interpreted the question as public sector jobs and services

Wow, thank you so much for such a detailed response.

I am a bit confused with the bolded part and the link between public sector expansion and interest rates.
And yes, crowding out would perfectly fit in against the increased spending argument. Thanks a lot.

How are you revising btw?

[Tateco]

(Original post by _becca)
That's to do with consumers' propensity to spend/save, and speculation right? So if taxes decreased they would expect a later increase so don't respond in the theoretical way of spending their now-higher disposable income. And then something to do with bonds.. I never got the bonds bit??

Huh? Crowding out is where government spending leads to high interest rates (due to more bonds needing to be issued) which stops the private sector from investing...

[Tateco]

(Original post by Alexander94)
Is this the PPF (production possibility frontier)

Yes.

[_becca]

(Original post by sweetascandy)
Wow, thank you so much for such a detailed response.

I am a bit confused with the bolded part and the link between public sector expansion and interest rates.
And yes, crowding out would perfectly fit in against the increased spending argument. Thanks a lot.

How are you revising btw?

The bit in bold was more about how public sector expansion would fit in with what else the government/Bank of England is doing - so no causal link between them that I can think of..

I'm actually tutoring my friend for this exam as well and you'd be surprised how much it helps! I think because you have to fully understand the topic and also you have to explain each step in detail (whereas I think I have a tendency to skip over steps because they seem 'too obvious' - but the exam rewards you for putting every step in ). Phone calls with friends about it also help!

Also I've just got past papers and planning the questions. Haven't written any up yet but I might in the next couple of days. What about you?

(Original post by Tateco)
Huh? Crowding out is where government spending leads to high interest rates (due to more bonds needing to be issued) which stops the private sector from investing...

Oh! my bad, sorry! Thanks for explaining though

[Stabilopink]

Crowding out can also happen when the government competes for resources (labour and capital resources) and pushes the price higher.

[Tateco]

(Original post by Stabilopink)
Crowding out can also happen when the government competes for resources (labour and capital resources) and pushes the price higher.

Exactly. The basic concept is just "if the government is using it, the private sector has to use less of it", whether that be investment sources or any kind of resources.

[tarek1]

(Original post by Alexander94)
Is this the PPF (production possibility frontier)

Yes, you can call it the boundary or frontier.

[krauja]

So globalisation happens when economic integration between countries increases free trade and reduces protectionist measures...is this right??

[xXACEXx]

(Original post by krauja)
So globalisation happens when economic integration between countries increases free trade and reduces protectionist measures...is this right??

Yes globalisation is the increased integration of world economies. Countries benefits from increased exports due a greater export market.

There is lower prices due to comparative advantage and economies of scale.
There is lower prices and increased economic welfare for consumers due to increased competition from abroad

There is greater interdependence of world economies so the the UK is more prone to external shocks as if one economy is affected all other economies will be affected.