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AQA A2 Economics Unit 4 - June 20th

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    (Original post by Super Mario 64)
    Is there any need to balance a budget when it's in surplus?

    And what are some of the positive impacts of balancing a budget i.e. cutting back expenditure.

    I can only think of long term benefits but not short term ones..
    well in terms of the global economy it's not possible for all economies to run surpluses together so if some countries run consistent surpluses other countries are likely to have consistent deficits. This can lead to those countries with deficits imposing import controls which penalise all countries as it distorts free trade and adds to protectionism (leading to retalliation, monopoly producers possibly, and welfare losses).

    From the exchange rate a balance of payments surplus can create domestic inflation. A surplus means X-M is positive in aggregate demand as exports are exceeding imports...this is an injection of AD into the circular flow. It is unlikely in today's economy but if an economy is close to full capacity then the increase in AD will bring demand pull inflation.
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    (Original post by twig)
    I have read somewhere that this exam was written ~18 months ago by the examiners. With this in mind, what topics are people anticipating?

    Also, what would be a good source of info for cramming lots of notable news info for the past few months. Particularly looking at a summary of the eurozone crisis, and anything else relevant. Some little facts, figures for placing into the essays would be nice!
    I made this doc earlier, hopefully helpful

    https://docs.google.com/document/d/1...De-u8L3wo/edit
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    (Original post by sweetascandy)
    Can someone please explain the whole concept of NAIRU to me pleeease? :please:
    It's the rate of unemployment when wage inflation is stable. It's like equillibrium uneployment consisting of frictional and structural unemployment. If unemployment falls below this level (possibly from increases in govt spending to boost AD) then inflation rises. If unemployment rises above this level from govt trying to reduce inflation then the wage rate and inflation will fall.
    Think of it as a long run rate of unemployment kinda like the idea LRAS.
    Reducing the NAIRU can be done by adopting supply side policies especially labour market measures
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    Any evaluation on the trade off philip curve??
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    Providing a bit more evaluation here, this is something I wrote up regarding a policy that was actually spoke about today, so it's pretty much as contemporary as you can get. I have adapted it for ECON 4 evaluation.

    - UK Government introduction of policy of subsidising private investment, including infastructure investment, through loan guarantees. As a result, private corporations are funnelled money, rather than using expansionary fiscal policy and restoring huge cuts in public investment. This alternate route is namely recognised as a blunder; as this shows that over the two years of the Cameron government, they have wasted time doing exactly the wrong thing. Prof Krugman writes that ‘privatising the process will confuse enough people that it can escape blame.’ He further states that in the introduction of this ‘supply-side manifesto’ of subsidising capital projects, unlike government contracting which has safeguards in place, this new subsidation process will allow for ‘big giveaways’ to favoured industries that nobody will notice. Krugman dubbed this Crony Keynesianism – doing policies which logically call for government spending, but take the form of favoured private sector interests.

    The main jist of this is that Osborne is subsidising capital firms that the private sector will play a role in. As such, instead of using expansionary policy which would restore the cuts, the Cameron government has chosen to initiative a campaign for austerity and the emerge of greater market forces. But this is obviously flawed, as not only is this the EXACT OPPOSITE of what they have been doing and showing their complacency, they are using private firms which will inherently mean bigger payouts and a further disruption to the system.
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    (Original post by Prolific)
    On the topic of inflation, I'd like to suggest a few evaluation points that bring you into the top tier, and they're pretty much to be used if you ever talk about inflation and the measurement.

    - Inflation is often 'over-cooked' by government, where the true rate of inflation is a lot higher than what the headline inflation rate states. Particularly early last year, the jump in commodity prices meant that speculators began to become concerned with the reliability of the data, and there was, in effect, imperfect knowledge in the distribution of inflation figures globally.

    - Inflation has seen a rise in a few new measurements, which have proved to be important in the definition of inflation inertia. Primarily, median inflation rate, the trimmed-mean, and core inflation. As a result, the true impact of inflation, and whether it is better than deflation, is partially determined to how the inflation rate is measured.

    - The core inflation rate is also thought to be a good indicator of the impact of such. As this is effectively a basket of goods with food and energy withdrawn, both Prof Krugman and Ned Phelps agree that inflation rates are self-perpetuating, and that not every price in the economy is determined by market forces. Since this paper is synoptic, you can mention that a lot of prices are set by oligopolistic firms or negotiated via long-term contracts. Conclusively, whilst inflation could be seen as better than deflation, the disinflation of the 1980s suggests that inflation is 'embedded' in the economy, as long as there is not large fluctuations of demand and supply.

    These are really high-end evaluation marks that are for people who are aiming for the A*. They are a little tricky to understand, but in an inflation question, it would be favourable with examiners to mention that you know more than just the sweeping knowledge of inflation and its advantages/disadvantages, but rather its measurement and why its impact largely depends on what sectors are looking at what measurement.

    I do plan on making a large sheet of advantages, disadvantages and evaluations for each of the topics, hope this helped.
    Brilliant. Thanks very much, would never have thought of any of these, particularly the last point.
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    Lots of people seem to be anticipating a question on inflation/deflation, but my text book barely covers deflation at all, anyone have any links or able to summarise benefits/costs?
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    (Original post by megan.cl)
    Lots of people seem to be anticipating a question on inflation/deflation, but my text book barely covers deflation at all, anyone have any links or able to summarise benefits/costs?
    Benefits of deflation: Improved export performance, Reduce burden of tax (opposite of fiscal drag), slower depletion of resources.
    Drawbacks of deflation: Loss in confidence as it can be a sign of weakening economy, higher imports costs, reduced investment as a result of confidence, real interest rates increase and hence higher cost of borrowing.

    However: depends whether its malevolent or benign, the % of deflation, how long, the economy's strength.
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    For the EU concept what do we need to look at? Because i think my text book was made in 2008ish, so much has happened since then, do i still need to learn the pre-2008 information from the book or should i try to learn something else about the EU?

    @Tarek1, thanks for the reply, it wouldn't let me rate your post though.
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    (Original post by megan.cl)
    For the EU concept what do we need to look at? Because i think my text book was made in 2008ish, so much has happened since then, do i still need to learn the pre-2008 information from the book or should i try to learn something else about the EU?

    @Tarek1, thanks for the reply, it wouldn't let me rate your post though.
    EU:

    Structure of the EU:

    - The council of ministers.
    - The commission.
    - The european parliament.
    - The court of justice of the european community.
    - The european central bank.

    Why was the EU formed:

    - It was formed in 1957, which was the first attempt to create a the single market.
    - After the world war, there needed to be a way to integrate countries and make it a strategic interest not to start another war.
    - To open and create the single market, free movement of labour, goods, service, and capital.

    The single market

    - Free movement of labour, goods, services and capital.
    - To liberalise trade.
    - Improve competition through the lisbon strategy.

    Benefits of single market: Greater economies of scale, increase dynamic efficiency, increase trade liberalisation, reduced transport costs, allows people to travel more freely.

    Drawbacks of the single market: Domestic firms can suffer, deindustrialisation, effect on exports, increase monopoly powers.

    Benefits of the single currency: Reduced transaction costs, increased competition, increased foreign direct investment, increase confidence due to exchange rate certainty.

    Drawbacks: Loss of independent monetary policy, cost of changing to euro, greater political pressure to join european fiscal stability facility/ fiscal compact, greater use of fiscal policy to undergo economic reform can result in higher debt higher and higher cost of borrowing as a result (same thing that happened to greece), economies in the euro are widely diverging and have different growth rates so ECB may not follow and interest rate that suits the uk, we would have been effected more by eu issues due to the problems in bonds markets and the cost of borrowing.

    We also benefits a lot from the Common agricultural policy that uses half of the eu budget to subsidise agriculture.
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    (Original post by tarek1)

    "greater use of fiscal policy to undergo economic reform can result in higher debt higher and higher cost of borrowing as a result"

    .
    Thank you! Your going to ace this exam!

    Sorry if this is really stupid and obvious but how does it result in a higher cost of borrowing?
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    (Original post by megan.cl)
    Thank you! Your going to ace this exam!

    Sorry if this is really stupid and obvious but how does it result in a higher cost of borrowing?
    Its no problem.
    Because a lack of fiscal discipline and higher uncontrollable government debt would generate fears in bond markets since they could default on their debt, causing higher cost of borrowing because investors would want higher yields as a result of higher risk.

    http://www.youtube.com/watch?v=0FxFvQ_NJ3E

    Thats a documentary on the eu criss. I found it useful in putting everything into context. Good luck!
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    Might sound stupid, but is it likely that a globalisation question will be merged with a EU question?


    This was posted from The Student Room's iPhone/iPad App
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    (Original post by rocknrollnerd)
    Might sound stupid, but is it likely that a globalisation question will be merged with a EU question?


    This was posted from The Student Room's iPhone/iPad App
    Highly doubt it. But there are certainly aspects of globalisation which apply to economic integration aka the EU.
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    GUYS!

    For AS Econ Unit 2, the A grade is usually around 55/75. How many marks do you reckon 90 UMS is? I need to work out how much UMS I should be needing to get in the Econ 4 paper to get an A overall!
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    (Original post by Prolific)

    The main jist of this is that Osborne is subsidising capital firms that the private sector will play a role in. As such, instead of using expansionary policy which would restore the cuts, the Cameron government has chosen to initiative a campaign for austerity and the emerge of greater market forces. But this is obviously flawed, as not only is this the EXACT OPPOSITE of what they have been doing and showing their complacency, they are using private firms which will inherently mean bigger payouts and a further disruption to the system.
    Sorry, trying to get my head around this. So how recent is this policy? The UK government essentially are now choosing to pump money into the private sector (where the firms can choose to do whatever they want with their money, thus increasing the risk of failure in the scheme) instead of the public.

    Do they want to do this to encourage private sector growth in the long term? (so if they help the private firms out now, in the long run they'll be self-sufficient enough to keep growing, take the burden off the gvt and aid growth in the economy)

    a) Where are they getting this money from suddenly?
    b) So on the one hand they're pushing contractionary measures (pub sector pay freezes, job losses, cuts) but on the other expansionary (private sector expansion)?

    I guess you could also tie into this that UK is in a liquidity trap at the minute (monetary policy become ineffective because i/r so low) so there's no room for manouevre with monetary policy - so the gvt need to utilise fiscal policy efficiently to effect short term change. Except what they're doing is negating each other.




    (Original post by The Doggfather)
    GUYS!

    For AS Econ Unit 2, the A grade is usually around 55/75. How many marks do you reckon 90 UMS is? I need to work out how much UMS I should be needing to get in the Econ 4 paper to get an A overall!
    usually around 66-68 /75, depending on how easy the paper is
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    (Original post by The Doggfather)
    GUYS!

    For AS Econ Unit 2, the A grade is usually around 55/75. How many marks do you reckon 90 UMS is? I need to work out how much UMS I should be needing to get in the Econ 4 paper to get an A overall!
    For the Jan '12 ECON4 paper 90 UMS was 65/80 and the A boundary was 58/80
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    (Original post by The Doggfather)
    GUYS!

    For AS Econ Unit 2, the A grade is usually around 55/75. How many marks do you reckon 90 UMS is? I need to work out how much UMS I should be needing to get in the Econ 4 paper to get an A overall!
    What are your other unit grades.
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    (Original post by tarek1)
    Benefits of deflation: Improved export performance, Reduce burden of tax (opposite of fiscal drag), slower depletion of resources.
    Drawbacks of deflation: Loss in confidence as it can be a sign of weakening economy, higher imports costs, reduced investment as a result of confidence, real interest rates increase and hence higher cost of borrowing.

    However: depends whether its malevolent or benign, the % of deflation, how long, the economy's strength.
    Another 'benefit' is that it makes huge loans and mortgages non-viable so doesn't fuel capitalism. Some may see this as a drawback
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    (Original post by megan.cl)
    Thank you! Your going to ace this exam!

    Sorry if this is really stupid and obvious but how does it result in a higher cost of borrowing?
    As well as what Tarek said, there is a more direct mechanism which results in higher borrowing costs.

    Expansionary fiscal policy requires a source of funding. This funding comes from the issuance of bonds by the government. To attract potential investors to these new bonds there will need to be a higher yield (interest rate on the bond), these higher interest rates then filter through the system as large institutional investors (that will hold these government bonds) will be the mortgage/loan providers.

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Updated: September 6, 2012
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