OCR A Level Economics Macroeconomics H460/02 - 6 Jun 2022 [Exam Chat]

This paper went much better than Paper 1 (i lowkey sort of bottled my analysis on the trade union stuff, said that monopsony causes unemployment when it doesn't).

8 marker: was ok talked about how targeting can keep inflation expectations in line and thus keep inflation low and stable. Countered by saying that if inflation goes out of target central bank can lose credibility and it could lead to a wage price spiral. Evaluated by saying that Brazil kept inflation within target even after it only exceeded it a few times, therefore targeting is likely to keep inflation low and stable.

12 marker: cons is debt interest payments which present an opportunity cost as government may have to cut spending elsewhere, harming AD. Pro is that if debt is used for expansionary fisc.pol. then tax revenues can rise alongside GDP to pay off debt

1st 25 marker: tax cuts was basically handed on a platter - two fat analysis points for free (income + corporation tax cuts), eval crowding out, business + consumer confidence, the fact that income tax cuts don't help unemployed w 0 income etc etc. final judgement about being less effective than fiscal transfers ie stimulus cheques

2nd 25 marker: a bit more iffy, analysed and evaluted domestic production subsidies + tariffs effect on unemployment with the fact that subsidies may be unsustainable and thus lead to unemployment going back to where it was before, also retalliation tariffs. Final judgement that protectionism would be beneficial at reducing unemployment provided it is in reaction to protecting against dumping practices.

Is it really demand-pull inflation though? Energy price increases lead to a decrease in SRAS (increased costs for firms). Higher natural gas prices affect food prices because natural gas is critical to make fertiliser too which has a huge knock-on effect on food prices (supply of food decreases thus raising price). Maybe that output gap exists right now because LRAS has decreased (EU workers leaving UK, productivity decreasing, capital stock reducing due to not enough maintenance investment by firms, workers taking early retirement and leaving labour force etc etc)?