OCR ECONOMICS F582 The National and International Economy [UNIT 2 - 19TH MAY 2015]

Original post by Super199

Hey was wondering what the causes of a deficit/surplus are?

I am assuming you are referring to trade account, ie the exports and imports.

Heres an explanation:

Exchange rate: An appreciation of a domestic country currency, will mean their currency is now stronger. However it increases the price of the exports thus reduces the international competitiveness, in terms of price. Thus the demand for our exports fall. Whereas imports now becomes relatively cheaper, thus we demand more of imports. Deficit is where imports exceed exports

2) Quality, no matter how cheap your products; if you quality is appalling simply demand falls and remains low.

3) Protectionisms, tariff/quota etc. A country may limit your exports amount regardless how cheap you are or how amazing the quality it is

Cant think of anymore right now, feel free to add!~ Pls correct me if I am wrong...

Reply 3

The above listed causes are true but I believe there are a few more:

Deficit: (demand-side)
Strong domestic growth
Recession overseas - incomes abroad decreases, therefore our exports decrease

there are also specific "supply-side" causes of a deficit:
low investment
low productivity
high ULC
depletion of resources

if i've made any mistakes, please let me know

AP

Reply 4

Don't forget a low domestic interest rate... will encourage domestic spending... so imports will increase while exports will stay the same... thus leading to a trade deficit
Also changes to domestic real incomes (already mentioned international incomes)....a rise in domestic incomes..... increase in demand for imports, no change to exports.......trade deficit
I think between us we have covered them all :smile:

Reply 5

What have people got for changes to UK international trade pattern since 2000?

The textbook isn't great for this as it was written in like 2008

I was thinking:
- Growing trade with China
- Increased exportation of services (especially financial and educational services)
- Increased trade with European Union countries (because of external tariff)
- Increased importation of consumer goods (from where labour costs are lower) and oil (as UK's supply runs out)

Anyone got any more? Are you guys going to also learn some statistics in case it's the essay question?

Thanks :smile:

Reply 6

It is highly unlikely that you'll need to refer to stats which you need to know before hand.

Usually, L1 and L2 are simple enough and for L3 and L4, references to the context if the question is specific to the case study should be good enough.

AP

Reply 7

I guess you're right although while I don't think you need to, I don't think it would hurt to have a couple of examples to back up your points. :smile:

In terms of level 2 and 3, is level 2 making the points and level 3 explaining them or what? Thanks :smile:

Reply 8

so level 1 is definitions, level 2 is application, level 3 is analysis, and level 4 evaluation.

E.g. Question asks about how lower gov spending would reduce demand-pull inflation
for level 1- i might define inflation and say what gov spending is and that it is a part of Ad
level 2 - decrease in gov spending would lower AD etc
Level 3 - drawing a diagram to show this and analysing how the fall in AD will reduce the price level and a fall in R GDP. Note: it is not enough to say "the px level falls", you'd get the L3 marks for saying WHY it happens
Level 4 - the usual "depends on where the economy is functioning at" or something like that

hope that clears it up.

AP

Reply 9

Agree with your plans. You have listed the main points, same as what I would do and lastly end it with a conclusion ^_^

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Reply 10

Yeah, that's what I thought thanks :smile:

Any ideas on what the essay might be on this year?

Reply 11

Any ideas about changes to UK international trading pattern ? :smile:

Reply 12

not much idea for macro, micro might be tradable permits as it hasn't been asked yet but is on the spec and the spec is changing after this year so this is their last chance to ask it.

AP

Reply 13

Good shout, but there isn't a massive volume to say about them so it would probably tie in with the other ways governments can eradicate market failure (taxes, bans, info provision, regulation), wouldn't it?

Reply 14

I'm desperately hoping they do, it's been so difficult writing a model essay for tradable permits and i know my essays on subsidy or taxation are much better.

AP

Reply 15

Wasn't last year it was on taxation/regulation...

Provision information hasn't been on for a while. Wait this is unit 2 thread...discuss in the unit 1 thread?
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Reply 16

I was asking about macro topics :smile:

Reply 17

edit: what i wrote, confused people so i rather removed it

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(edited 9 years ago)

Reply 18