Edexcel AS Economics (New Spec) Unit 2 - 23rd May 2016

[QUOTE=rosemondtan;65031415]Basically, the economy is complicated. There are so many possible effects from one cause, which is why we have "tradeoffs". The analysis about increase in AD works because you can see it on the AD/AS Diagram. When you decrease interest rates, people naturally spend more and firms invest make as cost of borrowing falls. Therefore AD WILL increase and exchange rate increases, causing level of exports to decrease.

However, if you consider monetary policy, this could conflict as a decrease in interest rates means foreign investors stand to get less money from putting in our banks (hot money) therefore, they will change their money to other currencies and this will cause the supply of pounds on the market to increase, resulting in a fall in the exchange rate and thus more competitive price of exports. This will cause level of exports to increase.

Could you talk about this conflict as an evaluation point?

Reply 103

OP

Original post by Diastal

Could you talk about this conflict as an evaluation point?

Yes you can

Reply 104

Does the level of productivity affect AS?

Reply 105

I have a question

Food: weighting in the cpi basket 31.8%, annual percentage change in price 2.5%
Non-food: weighting in the cpi basket 68.2%, annual percentage change in price 1.2%

How do i calculate the annual cpi inflation rate from this figure?

Thanks :smile:

)

Reply 106

OP

Original post by xongose

I have a question

Food: weighting in the cpi basket 31.8%, annual percentage change in price 2.5%
Non-food: weighting in the cpi basket 68.2%, annual percentage change in price 1.2%

How do i calculate the annual cpi inflation rate from this figure?

Thanks :smile:

)

I take it that the base year is 100, so the price index for food is 102.5 at nominal prices and 101.2 for non food. Take (102.5 x 31.8) + (101.2 x 68.2) and divide the whole thing by 100. That should give you the price index. Subtract this from the base year of 100 and you get your inflation rate. ( I'm too lazy to get a calculator sorry)

Reply 107

[QUOTE=rosemondtan;65033649]I take it that the base year is 100, so the price index for food is 102.5 at nominal prices and 101.2 for non food. Take (102.5 x 31.8) + (101.2 x 68.2) and divide the whole thing by 100. That should give you the price index. Subtract this from the base year of 100 and you get your inflation rate. ( I'm too lazy to get a calculator sorry)

If the price index for food is 102.5, wouldn't that mean that the price for food has risen by 2.5? How would you know if it's risen since it only says percentage change and not a decrease or increase in percentage

Reply 108

OP

Original post by Diastal

If the price index for food is 102.5, wouldn't that mean that the price for food has risen by 2.5? How would you know if it's risen since it only says percentage change and not a decrease or increase in percentage

If it's a fall in prices, the percentage change will be negative. So it will be -2.5 and not 2.5. Unless OP means something else, then I don't know.

Reply 109

Original post by rosemondtan

I take it that the base year is 100, so the price index for food is 102.5 at nominal prices and 101.2 for non food. Take (102.5 x 31.8) + (101.2 x 68.2) and divide the whole thing by 100. That should give you the price index. Subtract this from the base year of 100 and you get your inflation rate. ( I'm too lazy to get a calculator sorry)

Can I just put:

(2.5 x 31.8%) + (1.2 x 68.2%)

Will that be ok?

Reply 110

OP

Original post by xongose

Can I just put:

(2.5 x 31.8%) + (1.2 x 68.2%)

Will that be ok?

Yes, but only in this case because I assumed the base year was 100. It isn't always the case.

Reply 111

Original post by rosemondtan

Yes, but only in this case because I assumed the base year was 100. It isn't always the case.

So what if the bas year is 90?

Reply 112

[QUOTE=xongose;65034565]So what if the bas year is 90?

Then do what you did but divide by 90 instead of 100 I believe

Reply 113

harryleavey

16

Original post by Diastal

Then do what you did but divide by 90 instead of 100 I believe

The index number would be 92.5 for example

(edited 7 years ago)

Reply 114

Bruce267099

5

Could someone explain what a price index and a base year is. I get so confused over them and mabye a worked example :biggrin:

Reply 115

amelienine

12

Original post by Bruce267099

Could someone explain what a price index and a base year is. I get so confused over them and mabye a worked example :biggrin:

A base year just means the first year. Usually, the price index is 100 for the base year.

So, Year 1 has a price index of 100.

If the price index of Year 2 is 105, then that means that there is an inflation of 5% between the 2 years.

Reply 116

amelienine

12

ImageUploadedByStudent Room1463904267.743352.jpg

How would you calculate the change in unemployment over the period shown?

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Reply 117

amelienine

12

Also, does anyone have a link to the June 2015 Unit 2 paper? I can't seem to find it online...

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Reply 118