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AQA A2 Economics Unit 4 - June 20th

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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.

usually around 66-68 /75, depending on how easy the paper is

They are essentially trying to reduce the size of the public sector in the long-run, on the belief that the private sector is more efficient than the public sector.

a) They are getting the money the same way they always have, borrowing.
b) Yes, they are trying to reduce the size of the public sector and get the private sector to pick up the slack (in the most basic sense)

Reply 261

Prolific

Original post by _becca

I was reading this policy scheme on the FT. It was announced on the 15th June.

You're correct in stating that it's aim is now to pump money into the private sector, rather than choosing to use contractionary fiscal policy in the long-run as a means of lowering the budget deficit.

You're correct again in stating that they are doing this as a means of building up the independence of firms, but the take on this is essentially the government is negating the policies they've been so keen to push for these two years. The argument is that rather than just using contractionary fiscal policy and SHOWING the public that they have been wrong for two years, they are willing to use risky supply-side policies and hope that the public cannot see that they are in effect doing the exact opposite of what they've been saying is right.

This is more an argument of concern as it shows that their policies are not transparent, and that they are negating what they have been trying so long to commit to.

In evaluation, I'd probably put it like so: "In evaluation, whilst supply-side policies are often thought to be better in correcting a budget deficit as they shift the PPF outwards with an increase in the LRAS, perhaps the choice of policy is determined not by what is best for the circumstance, but is what is best for retaining the incumbency of the current government. Prof Krugman stated a valid argument against the recent policy of Osborne subsidising private firms, which was that instead of contractionary fiscal policy and an increase in infrastructure through public sector projects, in allowing private sector firms to act independently with government money, this will disguise their failed policies of quantitative easing and increases in government spending. From this, it is evident that perhaps which policy instrument the government uses hinges on which will best protect their position, the risky strategy of private sector growth meaning that the government is not looking for better policy tools, but rather looking to payout large sums in order to cover for their sudden knowledge that the policies they have been implementing have made the problems worse, rather than better."

I'd have to say, this is something that I'd imagine someone who wants the A* will look to use, as it is difficult to explain. In essence, the current government has chosen to disguise their mistakes by contracting private firms to do their dirty work and increase LRAS, rather than showing the public that they are doing this, and essentially saying "Look, we're changing out economic policy to exactly what we said was the wrong way 2 years ago."

----- In reply to the post above me, I'd probably look to use this point as a sort of 'wrap all, tie all' statement towards the end of my exam, so I would probably put it in the most basic sense, which is that the government is reducing the size of the public sector and expanding the private sector, covering their tracks of expanding the public sector, and restricting the private sector.

(edited 11 years ago)

Reply 262

oic_2006

Original post by gtcalder

For the Jan '12 ECON4 paper 90 UMS was 65/75 and the A boundary was 58/75

the paper is out of 80, so its actually 65/80. very low :O

Reply 263

tallysingh

Any predictions anyone? Ive noticed monetary policy has not come up in the new spec, could definatley be a hot topic, along with protectionism.

Reply 264

alexsmith_85

Anyone have the jan 2012 paper and mark scheme????

Reply 265

Hazst

Hi all,

I'd greatly appreciate it if someone could go through the Phillip's curve analysis and evaluation and also globalisation benefits and costs with evaluation. I know these are two gaping topic areas but I really do lack the information I need! Please please please could someone go through these!

Reply 266

ilovecatsforlife

My economics teacher predicted monetary policy for the essay and the euro for european context data response.

So make sure you've got good understanding on EU and its relationship with the UK and its effect on the UK economy, as well as firm understanding of MPC, interest rates, inflation, money supply and exchange rates I guess. Tbh, there are so many options they give you that if you revise 80% of the content, you'd be highly unfortunate to not be given questions where you could get 80 ums or more, really unlucky in my view.

Reply 267

ilovecatsforlife

Also, mark schemes are really useful, they give you great evaluation points and tell you where the marks are, graphs and definition in 02+03/05+06 can give you as many as 8 marks, added with the essays, you get a fair few marks for very basic things.

Reply 268

megan.cl

Original post by ilovecatsforlife

I know this probably sounds really really stupid, but what would you put on a question about the euro? The euro stuff just really confuses me..

Reply 269

_becca

Original post by Prolific

Thanks for the detailed response! Yeah, the 'political vs economic' argument is often good for evaluation, particularly on the domestic policy side. best of luck for the exam :smile:

Reply 270

zahmed1

Whats the link between the exchange rate and interest rates? thanks in advance x

Reply 271

zahmed1

Does anyone know what type of question could come up for globalisation and for the EU context bit? Thanks x

Reply 272

tarek1

Original post by Hazst

Globalisation

Benefits:

- Greater competition, and larger markets for domestic business to target = great efficiency and economies of scale.
- Opportunities for the country to exploit comparative advantages, as well as investing in emerging markets, and exploit their growth potential through our financial services.
- Greater foreign direct investment = greater availability of finance for domestic firms, as well as innovation, economic dynamism, tech innovation, employment and multipliers that can result.
- Allows the Uk to exploit cheap labour and resources, although it is considered unethical and immoral, it still occurs (this can also be a disadvantages due to equality issues)
- Specialisation.

Drawbacks:

- The world becomes integrated, causing issues in one economy to effect others. You can look at the financial contagion that started in US, to effect the rest of the world. The uk is highly exposed to these issues due to our financial sector.
- Greater competition, which can effect domestic business. We can look at china exploiting their comparative advantage in labour intensive industries and india in services, and how this can and has caused deindustrialisation, and higher levels of structural unemployment. (although there are also potential opportunities to integrate with these countries).
- Threat of other brics nations.
- Higher levels of inequality, and greater pressure for, in particular emerging economies, to liberalise trade and adopt modern economic frameworks without social stability.
- Hot Money can destabilises economies due to the liberalisation of capital markets. We can look at east asian crisis in 1997 which, as a result of a weak south korean economy, had large outflow of capital due to growing investor fears.
- Increases Global economic instability.

Reply 273

ilovecatsforlife

Original post by megan.cl

I know this probably sounds really really stupid, but what would you put on a question about the euro? The euro stuff just really confuses me..

I don't know. You just need to know the advantages and disadvantages of joining the euro and the effect on the UK economy. It's difficult to know what exactly they could ask on the euro in a data response. I personally don't feel it will. But I'm revising EU/exchange rate systems, trade, globalisation and protectionism so that I'm in a position to answer anything AQA throw at me.

I'm in the same boat as you. I guess they could ask,

Using extact x and your own knowledge evaluate the possible consequances of a break up of the eurozone on the UK economy. But even then, not being funny, but our syllabus doesn't really go that into depth about it. Yes, we know if affects our exports, but what else?! I would be surprised if that was the question, because that's bordering onto undergraduate level where you'll need greater understanding of the euro itself and just how much the european economy relies on it.

What I do think they'll do it set up a question where you'll be able to fully share with the examiner your understanding of the euro sovereign debt crisis and the bad economic mismanagement.

Tbh, just revise aha :biggrin:

Reply 274

Stabilopink

I think there are a few basic lessons learnt from the Euro zone crisis:

You could argue that for a successful monetary union you need a degree of convergence so that Interest rates fit all economies. At the moment Germany is overheating due to low interest rates while the periphery countries are facing deflationary pressures.

For a successful monetary union you need a fiscal union to ensure convergence, this(for moral and democratic reasons) needs a political union.

That lower borrowing costs of Greece, Italy and Spain (that was partially caused by being in the common currency) in the 2000s caused excessive public and or private borrowing.

That in a monetary union if domestic firms do not undertake necessary structural reforms then they will not be able to hide behind the exchange rate.

Reply 275

tallysingh

Original post by Hazst

In basic terms, the short run phillips curve shows the general trade off between, unemployment and inflation, at any moment in time, if a government is to reduce the rate of unemplyment, it will have to accept an increase inflation.

Monetarists, however, pointed out that an the phillips curve does not show stagflation, which occured in the 1970s, this is likely to have been the result of a supply side shock, which led to high inflation, high unemployment, and negative output gap, something which was "impossible" according to the Phillips curve. Therefore, the long run phillips curve is a straight vertical line, there is no trade off between inflation and unemployment, and the only way to reduce the natural rate of unemployment, would be to accept an increase inflation. This can be shown by a diagram (which i do not know how to draw here however it should be in your textbook showing a wage-price spiral leading to accelerating inflation) Keynesians believe unemployment is demand deficient, however increases in demand, in the long run do not lead to increase in employment, they lead to increase inflation, with no effect on employment and output.

Therefore, the only way to achieve real economic growth are supply side polices. Cut cooperation tax, lower costs of production, cut income tax, and the education, investment etc. Hope this helps, if anyone can add to do this, or highlight any errors, please do so.

Reply 276

Prolific

Original post by _becca

Thanks for the detailed response! Yeah, the 'political vs economic' argument is often good for evaluation, particularly on the domestic policy side. best of luck for the exam :smile:

I tend to be pretty conservative in exams, more street smarts than book smarts unfortunately. I wish you the best for the exam, but it is good to allow room for little detail of context. It is not always the case that the government chooses what is best. Take a look at the 'Age of Austerity' promise by the Cameron example, which shows that often the greatest opportunity cost is one which benefits those who are in-charge. Good luck!