AQA Economics 25th May 2012 Unit 2 Exam
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Original post by Nilsdejongh
Just looked at a past question and jotted some notes down on how i'd answer.
its the June 2009 Macro Paper - Question 4 of Context 1.
Extract B (lines 11-12) states: ‘When total spending grows more quickly than the
volume of output produced, inflation is the result.’
Assess the view that inflation is always caused by an increase in aggregate demand.
(25 marks)
that is the question..
In the mark scheme it says nothing about talking about how a government would go about reducing inflation.. like using different Fisc and Mon policies
i just wanted to ask you guys about how you know what to include in your answer.. like how you know when to talk about how the problems can be solved and the disdvantages to different appproaches.
its the June 2009 Macro Paper - Question 4 of Context 1.
Extract B (lines 11-12) states: ‘When total spending grows more quickly than the
volume of output produced, inflation is the result.’
Assess the view that inflation is always caused by an increase in aggregate demand.
(25 marks)
that is the question..
In the mark scheme it says nothing about talking about how a government would go about reducing inflation.. like using different Fisc and Mon policies
i just wanted to ask you guys about how you know what to include in your answer.. like how you know when to talk about how the problems can be solved and the disdvantages to different appproaches.
The question is asking you what are the causes of inflation and if it is always caused by demand, so you would talk about demand-pull inflation and cost push inflation.
You would then talk about the advantages and disadvantages of them.
(edited 11 years ago)
Original post by Nilsdejongh
Just looked at a past question and jotted some notes down on how i'd answer.
its the June 2009 Macro Paper - Question 4 of Context 1.
Extract B (lines 11-12) states: ‘When total spending grows more quickly than the
volume of output produced, inflation is the result.’
Assess the view that inflation is always caused by an increase in aggregate demand.
(25 marks)
that is the question..
In the mark scheme it says nothing about talking about how a government would go about reducing inflation.. like using different Fisc and Mon policies
i just wanted to ask you guys about how you know what to include in your answer.. like how you know when to talk about how the problems can be solved and the disdvantages to different appproaches.
its the June 2009 Macro Paper - Question 4 of Context 1.
Extract B (lines 11-12) states: ‘When total spending grows more quickly than the
volume of output produced, inflation is the result.’
Assess the view that inflation is always caused by an increase in aggregate demand.
(25 marks)
that is the question..
In the mark scheme it says nothing about talking about how a government would go about reducing inflation.. like using different Fisc and Mon policies
i just wanted to ask you guys about how you know what to include in your answer.. like how you know when to talk about how the problems can be solved and the disdvantages to different appproaches.
I'd start with the definition of AD and inflation,then give some of the causes of inflation (demand-pull and cost-push) with a diagram for at least one.
Then, depending on what information the question gives, I'd say different causes of inflation and say if they are in any way linked to AD. Like a decrease of the pound does cause inflation though it isn't really caused by AD. Then for each reason given, give a small paragraph (maybe 3-4 lines?) about what policies could be used to stop it or reduce its effects. I'd try to use all three [Monetary, Fiscal and Supply-Side]. Then say (if you have enough time) what the advantages and disadvantages of using that policy are. Like for Monetary there could be time lags and such.
After that, go to a conclusion summarising what you said. So if inflation is always caused by AD and what policies could be used to prevent it. If you still have time, you could briefly (and discretely) mention another policy (which would probably be Exchange Rate Policy) and how that could solve one of the causes of inflation. But you have to write that part properly or it'll seem like the question is unfinished.
Well, that's my plan anyway, it usually gets me 18-25 marks so it should be helpful! (I hope)
All other things being equal, which one of the following is the most likely effect on the UK
economy of a change in the exchange rate from $1 = 60 p to $1 = 80 p?
A fall in aggregate demand and a rise in inflationary pressure
B A rise in aggregate demand and a fall in inflationary pressure
C A rise in aggregate demand and a rise in inflationary pressure
D fall in aggregate demand and a fall in inflationary pressure
Can someone help me please?
The answer is C but I am confused cos the question shows an increase in the exchange rate. So more imports less exports. Surely this is a fall in AD .... ahhh
economy of a change in the exchange rate from $1 = 60 p to $1 = 80 p?
A fall in aggregate demand and a rise in inflationary pressure
B A rise in aggregate demand and a fall in inflationary pressure
C A rise in aggregate demand and a rise in inflationary pressure
D fall in aggregate demand and a fall in inflationary pressure
Can someone help me please?
The answer is C but I am confused cos the question shows an increase in the exchange rate. So more imports less exports. Surely this is a fall in AD .... ahhh
Original post by Kieran?
My teacher is always stressing to use the data/ideas given to you in the extracts - you get marks for using it and with a decent understanding of macroeconomics you can write a solid paragraph with an idea that's been given to you which saves time trying to think of your own ideas
If the 25 mark question is about economic performance make sure you cover all 4 indicators of performance - economic growth, balance of payments deficit (current account), unemployment and inflation. It's always good to add up to date knowledge of the UK economy alongside this
Evaluation of your points is key. Talking about short run and long run effects is the easiest way to pick up the marks, for example the use of expansionary fiscal policy - in the short run it will increase the budget deficit but in the long run it will increase AD therefore lower unemployment leading to increased tax revenues. Another example which you can use in most cases is the evaluation of inflation - if AD increases, explain the risk of demand pull inflation but then go on to say that given the recession in the UK economy, AD is already very low and so demand pull inflation is unlikely
If the 25 mark question is about economic performance make sure you cover all 4 indicators of performance - economic growth, balance of payments deficit (current account), unemployment and inflation. It's always good to add up to date knowledge of the UK economy alongside this
Evaluation of your points is key. Talking about short run and long run effects is the easiest way to pick up the marks, for example the use of expansionary fiscal policy - in the short run it will increase the budget deficit but in the long run it will increase AD therefore lower unemployment leading to increased tax revenues. Another example which you can use in most cases is the evaluation of inflation - if AD increases, explain the risk of demand pull inflation but then go on to say that given the recession in the UK economy, AD is already very low and so demand pull inflation is unlikely
Your first line is a must! I've learnt from Unit 1, where I only got 17 in the 25 marker because I didn't really reference the data. I've started to get above 20 now that I do it.
Original post by Nilsdejongh
Just looked at a past question and jotted some notes down on how i'd answer.
its the June 2009 Macro Paper - Question 4 of Context 1.
Extract B (lines 11-12) states: ‘When total spending grows more quickly than the
volume of output produced, inflation is the result.’
Assess the view that inflation is always caused by an increase in aggregate demand.
(25 marks)
that is the question..
In the mark scheme it says nothing about talking about how a government would go about reducing inflation.. like using different Fisc and Mon policies
i just wanted to ask you guys about how you know what to include in your answer.. like how you know when to talk about how the problems can be solved and the disdvantages to different appproaches.
its the June 2009 Macro Paper - Question 4 of Context 1.
Extract B (lines 11-12) states: ‘When total spending grows more quickly than the
volume of output produced, inflation is the result.’
Assess the view that inflation is always caused by an increase in aggregate demand.
(25 marks)
that is the question..
In the mark scheme it says nothing about talking about how a government would go about reducing inflation.. like using different Fisc and Mon policies
i just wanted to ask you guys about how you know what to include in your answer.. like how you know when to talk about how the problems can be solved and the disdvantages to different appproaches.
I would probably look back at the types of inflation like cost push inflation and demand pulll inflation and talk about how much each type of inflation affect the total figure (cost-push inflation is said to be more significant for UK since its a Importation based country.) And then probably talk about the solutions to inflation such fiscal and monetary, but not too much since the question is asking more about the cause of inflation rather then its effects or how it can be dealt with.
Original post by justanotheruser
Not heard of this myself before, but
http://en.wikipedia.org/wiki/Paradox_of_thrift.
The paradox states that if everyone tries to save more money during times of recession, then aggregate demand will fall and will in turn lower total savings in the population because of the decrease in consumption and economic growth.
Changing the interest rate is a monetary policy, reviewed monthly the Bank of Englands MPC (Monetary Policy Committee). If you increase the interest rate, you make it more attractive for foreign investors to put their money in your banks so that they can get a return simply through the interest rate. This money is called hot money - and it's a VERY LARGE SUM of money, that's why they make a lot of money back on interest payments.
However, say an Arab wants to invest in the UK economy, he has to change his money from whatever currency it is in to pounds to put in our banks. This means that he is demanding pounds, which makes the pound stronger or causes an appreciation of the pound.
SPICED
Strong Pound Imports Cheaper Exports Dearer
This is not necessarily good as it reduces our international competitiveness as our exports will become more expensive in relation to other foreign countries, causing them to decrease. However, as the pound is stronger this means that we will be able to buy more imported goods for the same amount of pounds - so we will import more goods. Hot money can be damaging for an economy though - if exports decrease significantly, this causes unemployment and imports are a leakage from the circular flow of income -- which means that national income as a whole will decrease (y = E = O).
http://en.wikipedia.org/wiki/Paradox_of_thrift.
The paradox states that if everyone tries to save more money during times of recession, then aggregate demand will fall and will in turn lower total savings in the population because of the decrease in consumption and economic growth.
Changing the interest rate is a monetary policy, reviewed monthly the Bank of Englands MPC (Monetary Policy Committee). If you increase the interest rate, you make it more attractive for foreign investors to put their money in your banks so that they can get a return simply through the interest rate. This money is called hot money - and it's a VERY LARGE SUM of money, that's why they make a lot of money back on interest payments.
However, say an Arab wants to invest in the UK economy, he has to change his money from whatever currency it is in to pounds to put in our banks. This means that he is demanding pounds, which makes the pound stronger or causes an appreciation of the pound.
SPICED
Strong Pound Imports Cheaper Exports Dearer
This is not necessarily good as it reduces our international competitiveness as our exports will become more expensive in relation to other foreign countries, causing them to decrease. However, as the pound is stronger this means that we will be able to buy more imported goods for the same amount of pounds - so we will import more goods. Hot money can be damaging for an economy though - if exports decrease significantly, this causes unemployment and imports are a leakage from the circular flow of income -- which means that national income as a whole will decrease (y = E = O).
THANKS A LOT!!
Another quick question, Toxic debt is simply the debt on banks right?
Original post by hannahjones13
All other things being equal, which one of the following is the most likely effect on the UK
economy of a change in the exchange rate from $1 = 60 p to $1 = 80 p?
A fall in aggregate demand and a rise in inflationary pressure
B A rise in aggregate demand and a fall in inflationary pressure
C A rise in aggregate demand and a rise in inflationary pressure
D fall in aggregate demand and a fall in inflationary pressure
Can someone help me please?
The answer is C but I am confused cos the question shows an increase in the exchange rate. So more imports less exports. Surely this is a fall in AD .... ahhh
economy of a change in the exchange rate from $1 = 60 p to $1 = 80 p?
A fall in aggregate demand and a rise in inflationary pressure
B A rise in aggregate demand and a fall in inflationary pressure
C A rise in aggregate demand and a rise in inflationary pressure
D fall in aggregate demand and a fall in inflationary pressure
Can someone help me please?
The answer is C but I am confused cos the question shows an increase in the exchange rate. So more imports less exports. Surely this is a fall in AD .... ahhh
The question actually shows a decrease in the value of the pound since before the change $1 cost 60p whereas after $1 cost 80p, meaning that you have to pay more for the same amount and so the pound is worth less. Considering this, a depreciation in the value of the pound will lead to increased exports thus causing a rise in AD and inflationary pressure (C)
Original post by hannahjones13
All other things being equal, which one of the following is the most likely effect on the UK
economy of a change in the exchange rate from $1 = 60 p to $1 = 80 p?
A fall in aggregate demand and a rise in inflationary pressure
B A rise in aggregate demand and a fall in inflationary pressure
C A rise in aggregate demand and a rise in inflationary pressure
D fall in aggregate demand and a fall in inflationary pressure
Can someone help me please?
The answer is C but I am confused cos the question shows an increase in the exchange rate. So more imports less exports. Surely this is a fall in AD .... ahhh
economy of a change in the exchange rate from $1 = 60 p to $1 = 80 p?
A fall in aggregate demand and a rise in inflationary pressure
B A rise in aggregate demand and a fall in inflationary pressure
C A rise in aggregate demand and a rise in inflationary pressure
D fall in aggregate demand and a fall in inflationary pressure
Can someone help me please?
The answer is C but I am confused cos the question shows an increase in the exchange rate. So more imports less exports. Surely this is a fall in AD .... ahhh
The question is showing a decrease in the exchange rate.
oh yeh! wow major stressing haha. thanks for the help guys
Economics
Format for essays .....*
Use four key economic indicators * *
*Inflation,
*unemployment, * * * * * * * * * * *! Link all point in essay to one or two of these!*
economic growth,
*balance of payments *
Introductory paragraph*: Definition and briefly outline three/four major arguments you will be discussing.
Paragraph 2 : First argument and then analyse it too. Point out the flaws in the argument.
Paragraph 3 : Same.
Paragraph 4 : Same.
Evaluation : Sum it up, don't add any new arguments. Maybe throw in your own opinion on the matter if you want.
-**use real life examples*
- Use data from the information given.*
-Use diagrams to help you explain*
Main topics to come up*
FISCAL POLICY ! !
Spending. * * * *Taxation. * * * Borrowing. * * * *
Contracting ..... AD. Falling. * * * * * Expanding.......AD rising*
Used to influence AD, revenue, wealth, and correct externalities*
Link to inflation ---- > expanding FP is inflationary*
** * * * * * * * * * * * * * * * * * * * * *E.g Tax goes up .....inflation goes up
Link to unemployment ------> Using FP to increase AD can cause SR more employment *E.g government spending goes up, so AD goes up, then so more demand in the economy so more jobs created so unemployment falls.
Link to economic growth -----> can't cause economic growth but can be used as a supply side measure, E.g. Cutting taxes can encourage investment which then in the long run may cause growth but not the actual *cutting taxes.
Link to the balance of payments --> expansionary FP will lead to increase spending on imports , causing the current account balance to deteriorate. How much depends on marginal propensity to consume/import.
long run effects of FP in the AS curve .-- fiscal policy that can also have supply side measure effects .
*labour market incentives*
->cut income tax ... More incentive to work*
-> welfare benefit reforms .... Smaller gap between working and not*
Capital spending -> lower corporate tax ... Stimulate business from over seas
New business-> gov spending that is being done to increase AD could be spent on new businesses so in the ling run ....growth.
R and D -> again the gov spending could be used to increase private R and D so helping in the long run
Education -> gov spending could increase education and training*
CRITICISMS OF FP ...
Disincentives *of tax *increase -> trying to reduce AD through tax increase ..... Can cause fall in real wage .... So less likely to work for less . However people need to work as unemployment curve is relatively *inelastic.
Public spending side effects -> reducing gov spend to reduce *AD can cause Market failure in education and public transport etc.
Lack of information in decisions--> if there may be a recession then the government may decrease taxes to encourage spending to stimulate increase AD. However if they have a poor forecast and there is nor recession then it can cause inflation so information failure.
Time lag - may be to late!*
Don't know if this is much help .... Only first post
Format for essays .....*
Use four key economic indicators * *
*Inflation,
*unemployment, * * * * * * * * * * *! Link all point in essay to one or two of these!*
economic growth,
*balance of payments *
Introductory paragraph*: Definition and briefly outline three/four major arguments you will be discussing.
Paragraph 2 : First argument and then analyse it too. Point out the flaws in the argument.
Paragraph 3 : Same.
Paragraph 4 : Same.
Evaluation : Sum it up, don't add any new arguments. Maybe throw in your own opinion on the matter if you want.
-**use real life examples*
- Use data from the information given.*
-Use diagrams to help you explain*
Main topics to come up*
FISCAL POLICY ! !
Spending. * * * *Taxation. * * * Borrowing. * * * *
Contracting ..... AD. Falling. * * * * * Expanding.......AD rising*
Used to influence AD, revenue, wealth, and correct externalities*
Link to inflation ---- > expanding FP is inflationary*
** * * * * * * * * * * * * * * * * * * * * *E.g Tax goes up .....inflation goes up
Link to unemployment ------> Using FP to increase AD can cause SR more employment *E.g government spending goes up, so AD goes up, then so more demand in the economy so more jobs created so unemployment falls.
Link to economic growth -----> can't cause economic growth but can be used as a supply side measure, E.g. Cutting taxes can encourage investment which then in the long run may cause growth but not the actual *cutting taxes.
Link to the balance of payments --> expansionary FP will lead to increase spending on imports , causing the current account balance to deteriorate. How much depends on marginal propensity to consume/import.
long run effects of FP in the AS curve .-- fiscal policy that can also have supply side measure effects .
*labour market incentives*
->cut income tax ... More incentive to work*
-> welfare benefit reforms .... Smaller gap between working and not*
Capital spending -> lower corporate tax ... Stimulate business from over seas
New business-> gov spending that is being done to increase AD could be spent on new businesses so in the ling run ....growth.
R and D -> again the gov spending could be used to increase private R and D so helping in the long run
Education -> gov spending could increase education and training*
CRITICISMS OF FP ...
Disincentives *of tax *increase -> trying to reduce AD through tax increase ..... Can cause fall in real wage .... So less likely to work for less . However people need to work as unemployment curve is relatively *inelastic.
Public spending side effects -> reducing gov spend to reduce *AD can cause Market failure in education and public transport etc.
Lack of information in decisions--> if there may be a recession then the government may decrease taxes to encourage spending to stimulate increase AD. However if they have a poor forecast and there is nor recession then it can cause inflation so information failure.
Time lag - may be to late!*
Don't know if this is much help .... Only first post
Original post by bbk.momen
The shift from AD1
to AD2
could be explained by an increase in
A imports.
B the price level.
C costs of production.
D investment.
The curve shifted left. Which is a decrease in AD. So why is the answer A:imports? D:
to AD2
could be explained by an increase in
A imports.
B the price level.
C costs of production.
D investment.
The curve shifted left. Which is a decrease in AD. So why is the answer A:imports? D:
Exports minus imports (net exports) is a component of AD. If imports increase, net exports decrease meaning AD will decrease which will shift the curve left
Original post by Exotica
Any tips for the multiple choice??
I would say eliminate the ones you definately know are wrong which would then improve the probability of you getting it right
Original post by justanotheruser
Don't spend the whole 25 minutes on it! I usually aim for 10-12minutes on multiple choice (I know that doesn't sound like a lot of time, but I've done all the multiple choice from June 2004 -> now so a lot of it is repeated).
Then you spend ~3 minutes (max) on the definition [5 marks]
8 minutes on the 8 marker
12-14 mins on the 12 marker [ although you should try to go for a 12 mins]
ALL the remaining time + 25 mins on 25 marker -- seriously, this is worth 1/3 of the paper, you should be spending a while on this biggie!
Then you spend ~3 minutes (max) on the definition [5 marks]
8 minutes on the 8 marker
12-14 mins on the 12 marker [ although you should try to go for a 12 mins]
ALL the remaining time + 25 mins on 25 marker -- seriously, this is worth 1/3 of the paper, you should be spending a while on this biggie!
I would agree but don't rush the multiple choice and misread the question. If you are stuck on a question move on and come back to it at the end of the paper.
Original post by hannahjones13
All other things being equal, which one of the following is the most likely effect on the UK
economy of a change in the exchange rate from $1 = 60 p to $1 = 80 p?
A fall in aggregate demand and a rise in inflationary pressure
B A rise in aggregate demand and a fall in inflationary pressure
C A rise in aggregate demand and a rise in inflationary pressure
D fall in aggregate demand and a fall in inflationary pressure
Can someone help me please?
The answer is C but I am confused cos the question shows an increase in the exchange rate. So more imports less exports. Surely this is a fall in AD .... ahhh
economy of a change in the exchange rate from $1 = 60 p to $1 = 80 p?
A fall in aggregate demand and a rise in inflationary pressure
B A rise in aggregate demand and a fall in inflationary pressure
C A rise in aggregate demand and a rise in inflationary pressure
D fall in aggregate demand and a fall in inflationary pressure
Can someone help me please?
The answer is C but I am confused cos the question shows an increase in the exchange rate. So more imports less exports. Surely this is a fall in AD .... ahhh
A rise in AD I think because domestically it makes things cheaper for us. So if we're buying more then firms will see that they could push their prices up so demand-pull inflation occurs? I'm confused as well tbf, I thought it would be D or A.
What are welfare benefits?
Quick Reply
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