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What's the cases for and against the price mechanisms??
Reply 2041
"analyse the likely impact...." for this question, do we need to evaluation?

for Edexcel exams, if my point given is not in the marking scheme, will the examiners consider my point?

and should all my KAA be in one paragraph, then all evaluation in another or should i write the evaluation write after one KAA point?

Thanks in advance. (: and thanks Chelle-belle and Darrold for answering the previous ques! really appreciate yr help!
(edited 13 years ago)
has anyone got any past papers of work and leisure ocr, i have looked on the internet and there are not many
During economic crisis, does high interest rates causes economic inequality?

during economic crisis like what happened in Greece or at Korea 1997, would their national bank raise or lower the interest rate? and would that decision what so ever increase the gap between rich and poor?

if there is high interest rate, banks will get more moeny because people will want to save and companies would be hurt because they have to pay more interest. so, that will lower the gap between rich and poor(economic inequality)?

but

if there is low interest rate, people will borrow money from banks and also the companies however, i am talking about during the economic crisis, which means that the national bank is in a lot of debt and do not have the enough money to lend people which means that the bank will increase the interest rate during economic crisis.

so,

if economic crisis would happen, the bank will raise the interest rate and that will result what?

I think economic crisis increases the gap between rich and poor but I cant figure how it does because, as I wrote in the above, my guess ends up with lowering tha gap not increasing...


Please correct me if I am wrong, I am still learning.
Original post by zanahoria

Original post by zanahoria
During economic crisis, does high interest rates causes economic inequality?

during economic crisis like what happened in Greece or at Korea 1997, would their national bank raise or lower the interest rate? and would that decision what so ever increase the gap between rich and poor?

if there is high interest rate, banks will get more moeny because people will want to save and companies would be hurt because they have to pay more interest. so, that will lower the gap between rich and poor(economic inequality)?

but

if there is low interest rate, people will borrow money from banks and also the companies however, i am talking about during the economic crisis, which means that the national bank is in a lot of debt and do not have the enough money to lend people which means that the bank will increase the interest rate during economic crisis.

so,

if economic crisis would happen, the bank will raise the interest rate and that will result what?

I think economic crisis increases the gap between rich and poor but I cant figure how it does because, as I wrote in the above, my guess ends up with lowering tha gap not increasing...


Please correct me if I am wrong, I am still learning.

If you are taking the example of Greece you'll have a different explanation and different essay since the mechanisms are totally different. Greece has no monetary controls so you cannot mention their national bank since it is the ECB that will decide interest rates. In this case interest rates will not be dependant on what happens in Greece. Generally speaking due to the lack of investor, consumer and business confidence interest rates went down.

Taking this assumption, the gap between rich and poor should decrease:

1a.rich save higher proportion of income, lower interest rates reduce real returns from saving (assuming price level is constant)
1b.the wealthy are more likely to have their wealth in bonds which now 'should' have lower yields
2.in theory credit should be easier to get, generally lower income people depend heavier on financing themselves through troubled times
3.This type of crisis usually leads to high taxes on the rich

Though:

1.Crisis nearly always hits the poor worse
2.Austerity hits the poor worse as this simply means services they got free from the central and local government are now not available or free.

A few other points.

-Central banks do not go into debt, government do. Central banks in a simplistic way sort out the finances for the government ie they issue and repurchase debt.
-A Central bank does not can can never run out of money
-During high level of national debt interest rate is not the determine factor (demand for bonds is more important), nor would it be necessary to raise interest rates as this just means it's more expensive for the government to finance itself.
Current account deficits and the consequences of it...

Hey, I am struggling to get my head round the idea that a current account deficit will result in foreign debt. My reason being is that I can import as much as I want as an individual but this doesn't mean that I go have to go into debt because I can use my income to finance my expenditures.

Yet, I know that economies such as the UK and the US are experiencing high levels of debt which is because of their current account deficits.

Here is the textbook passage:

"Basically, the economy is living beyond its means. It is spending more than it is earning from abroad. It needs to borrow the difference. This borrowing may be done by the private or the public sector, but it will result in a build-up of foreign debt..."

Please could someone give me an example, or an explanation of why debt would have to build up and why a current account deficit is therefore a problem?
Reply 2046
Original post by Dave129
why a current account deficit is therefore a problem?


Current account deficit is normally balanced by the selling of financial assets or foreign exchange.
Problems:
- Increasing interest rate because of the selling financial assets. In order to make UK assets more attractive for foreign buyers of UK assets to buy, UK interest rates might have to rise. A by-product is this would be a curb in spending by UK firms and consumers. This reduction in spending would have an impact on imports, hence reduces current account deficit. However, higher interest rates then have the effect of depressing domestic consumption and investment.
- Exchange rate depreciation. Alternatively, overall balance could be achieved through the sale of foreign exchange reserves. This soaks up the excess supply of pounds that arises because UK residents are supplying more pounds in order to buy imports than overseas residents are demanding in order to buy exports.
- Potential loss of output and employment: A widening trade deficit may result in lost output and employment because it represents a net leakage from the circular flow of income and spending. Workers who lose their jobs in export industries, or whose jobs are lost because of a rise in import penetration, may find it difficult to find new employment.
(edited 13 years ago)
Reply 2047
Can anyone help with the following questions please?

- conflicts between fiscal and supply side policies?
- use of fiscal policy to incorporate environmental goals?

this is unit 2 macroeconomics. (:
Reply 2048
Hey everyone, new to the whole economics thing, I need some help on calculations on the mariginal rate of labour/capital.

the below questions do not relate to one another:

1. A unit increase in capital(with labour constant) causes output to increase by 10 units. A unit increase in labour (with capital constant) causes output to increase by 5 units. If a unit of labour can be hired for w and a unit of capital can be rented for r and if w/r = 2, then why whould the firm increase the ratio of capital to labour?

2. MPL = 360/L^0.5 and MPK = 240/K. The prevailing wage rate (w) and interest (r) are 40 and 50 respectively. if the firm minimises costs only with respect to labour, keeping capital at the constant level, the optimum number of workers to be employed by the firm is 81 units. what do you do to find out its 81 units?

Thank you. also does anyone know any websites I can get help with microeconomics calculations?
'A fall in the stock market is likely to reduce government revenues'

True or false?

I'm thinking true...
Original post by Mugs_Maloney
'A fall in the stock market is likely to reduce government revenues'

True or false?

I'm thinking true...


True. But my reasoning might be wrong: fall in the markets suggests an issue with the company, which may mean a fall in income, thus a drop in tax...
Hi, could someone help me out with these two A2 Macro questions:

What may be the effect of reducing the natural rate of unemployment?

How may the natural rate of unemployment be reduced?
Hey Guys.

I have some true, false or uncertain (if the information given isn't enough to say true or false :smile: )


1. If the government runs a budget deficit and the private sector invests more than it saves there must be a balance of payments surplus.
2. An increase in disposable income increases the average propensity to save.
3. In a Keynesian economy with proportional taxes, if the rate of indirect tax is increased and the rate of direct tax is decreased by the same amount there will be no effect on national income.
4. The larger is the marginal propensity to consume the steeper is the IS curve.
5. An increase in the price level shifts the LM curve to the left.
6. In a fixed price IS/LM model with lump sum direct tax, the balanced budget multiplier is less than one.
7. If the non-bank public decides to hold a higher ratio of cash to deposits the interest rate will fall.
8. In an IS/LM economy an increase in government expenditure increases the price of bonds.
9. In a classical economy an increase in the money supply has no effect on the interest rate.
10. If unemployment exceeds vacancies, wage rates must be falling.

Thanks in advance
Reply 2053
Could anyone help me with this question?


Consider a decision-maker with initial wealth w whose preferences over money lotteries are represented by the vNM utility function u(x) = ax + b (a; b > 0).
Check if the following statements are correct:

Given two money lotteries (with generic monetary outcome ????? R) characterized by CDFs F and G, if F first-order stochastically (second-order stochastically) dominates G, then:

1. The certainty equivalent under F is higher than the certainty equivalent under G,

2. The risk premium under F is higher than the risk premium under G.


Thanks!
Reply 2054
Can someone help me out with this question?:

Evaluate alternative measures which can be used to reduce unemployment (25 marks)

thanks
Original post by lilGem
Can someone help me out with this question?:

Evaluate alternative measures which can be used to reduce unemployment (25 marks)

thanks


Perhaps state why unemployment is bad.
Initially assume that Employment and Growth go hand in hand, so any policy to increase growth will also increase employment (or decrease employment, whatever). This is stuff like increasing Government spending (CIG XM), supply side policies like Research and development.
Also you could talk about cutting benefits (but the problems with that).
Also you may want to challenge the link between employment and growth, and whether increasing employment is beneficial (talk about position on the AS curve and also talk about the philips curve)
Reply 2056
Hello I am new to this forum and I am hoping it will be very helpful and I am also hoping eventually I will be able to help others. Took economics thinking it was a math class basically. Seems to be more of a essay class. I am slowly learning the way to approach the questions as an economist. Had a little trouble at first but seems to be sinking in.

My questions are:

How does the concept of economics of scale helps shed light on each of the following?

a)car pooling
b)farming
c)a huge refinery

any help will be greatly appreciated, just not grasping what they are asking, not sure how to answer. Thanks for looking and hopefully thanks for helping.
Can anyone help me with this question because i dont know how to answer it please?

Increased levels of sea- borne transport bring increased levels of negative externalities. Discuss two possible solutions to the market faileure arising from negative externalities.

help me please.....
Price Elasticity of Demand.

Can this ever be positive. According to wikipedia its nearly always negative but my teacher said its ALWAYS negative because one or the other (price or demand) will always have a negative, giving a negative answer. I know we usually ignore the negative sign then look at if its <1 =1 or >1 so the negative is irrelevant but I still need to know if products can have positive PED.

Also, if you can have positive PED, when is this the case. Can you name any examples. ie when does an increase in price not cause a decrease in demand.

Hope I have worded the question well enough for you to understand. Thanks in advance
Reply 2059
Hey, if you can help would be appreciated.
Having a mind blank,

What is the macroeconomic effect of a change in the value of the pound?

Have already discussed employment and trade balance but need a couple more points for my essay.
Thanks :smile:

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