Question spotting for F585 Economics The Global Economy OCR A level June 2011

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Hey guys. I know it's a bit late but I have a 100 slide powerpoint specifically written for my class for this years case by a well-established examiner. It's really useful, especially for the analysis and last minute revision!

Quote/PM for the download link!

Edit: It's actually excellent, because it tells you how to get the maximum marks with hints and tips.

Could you send download link please? :smile:

Reply 361

nik2111

Original post by GiddensFTW

hey i would really appreciate if you could send it to me as well please
good luck with the exam

Reply 362

nik2111

whats everyone's plan for revisen today??

Reply 363

Tariq_3458

Original post by nik2111

whats everyone's plan for revisen today??

Learning key definitions
I know none :/ lol

Reply 364

Mckenzie999

can some1 tell me what is freely floating and fixed exchange rate plz, and advantages n disadvantages of them?

Reply 365

nik2111

yh and some 6 mark questions in the tutor 2 u tool kit can be a bit odd and ask anything whilst the 10 mark and 20 mark are predictable

Reply 366

nik2111

Original post by Mckenzie999

can some1 tell me what is freely floating and fixed exchange rate plz, and advantages n disadvantages of them?

floating rates are when the exchange rate is made by market forces such as demand and supply

fixed is when the government sets a specific rate and uses it reserves and monetary policy setting to keep it fixed , so if demand falls the government will intervene and counter that

Fixed
Good - less uncertainty business can predict what there exports and imports will cost them
Bad- need foreign current reserves there is a opp cost that money can be used in education

Floating
good- it can change to current balance of payment problems
Bad- there is uncertainty

evaluation point 1- depends on the specific question
evaluation point 2- semi fixed rates?

(edited 12 years ago)

Reply 367

sarahharris

Original post by loki276

The percentage fall is real. There's a reason it says real gdp in the title of the table

So you're saying the REAL fall in GDP from peak to trough in Greece, say, 2008 - 2009 is 1.7%

(Earlier in this thread someone opined the % fall was in nominal)

In Slovakia in that time period there hasn't been a fall of 8.1% either.

Reply 368

06hwhelpton

Anyone wanna have a crack at this?

Comment on the extent to which a fixed exchange rate rather than a floating exchange rate is a stimulus to inflows of FDI (10)

Reply 369

nik2111

Original post by 06hwhelpton

Anyone wanna have a crack at this?

Comment on the extent to which a fixed exchange rate rather than a floating exchange rate is a stimulus to inflows of FDI (10)

10 mark yh?

1. yes it will due to uncertainty being eliminated firms will invest as they more or less know the price of there exports and imports
2. maybe not, a floating exchange changes by it self to offset balance of payment problems this could be preferred for business's.

evaluation
it could be argued that business confidence is the key and not the exchange rate

Reply 370

Tariq_3458

Original post by nik2111

Could a floating currency let a currency decline if its price are uncompetitive which then will lead to a depreciation in the currency making its exports cheaper and then becoming more competitive ?
correct me if im wrong

Reply 371

06hwhelpton

Original post by nik2111

Yeh 10 marker, Yeh that looks sweet - A floating ER diagram on the counter argument showing an increase in the value of the subject currency as well. Arguing the point of increased returns on investment.

Reply 372

06hwhelpton

Original post by Tariq_3458

Yes it could, but obviously not in the case of the Euro Zone. It is a sort of balance of payments automatic correction in the case of a country with a free floating ER.

Reply 373

Mckenzie999

Original post by nik2111

Thanks man!

Reply 374

nini27

Original post by Mckenzie999

can some1 tell me what is freely floating and fixed exchange rate plz, and advantages n disadvantages of them?

A currency that has an exchange rate which is set by the forces of demand and supply of its currency is a floating one
A fixed exchange rate is one where a country sets its interest rates in order for their currency value to be fixed to another, so, for example, if China wanted their currency to be 1$ = 1.5 Yuan, but it is currently 1$ = 1.75 , the chinese government will increase their interest rate, so the demand for the Yuan will increase, therefore its value will rise, and eventually 1$ will equal 1.5Yuan.

Advantages of a floating ER:
- No speculation of the currency, investors know the 'true value' of the currency as it reflects the performance the economy
- Monetary policy is more effective in controlling AD and inflation, as they don't use it to change their exchange rate
- Balance of payments problems are corrected automaticaly (low exports = lower Exchange rate = increase in the demand of the currency as it is now cheaper = increase in exports)

Disadvantages of a floating ER:
- risks of exchange rate fluctuations, might not attract FDI as much as a fixed ER

Advantages of fixed ER:
- reduced ER uncertainty
- reduced cost of trade, because their ER is fixed, if a foreign country buy their products, the currency of the fixed ER will not be affected.
- incentive for domestic firms to be more efficient, as if the ER cannot depreciate, domestic firms will have to match the improvements made by foreign competitors

Disadvantages of fixed ER:
- countries with a fixed ER must keep high levels of foreign currency reserves to maintain their exchange rate
- loss of control over domestic monetary policy, their interest rates is used to control the ER, so if the government wants to fuel the economy it will have no other option than using fiscal policy.
Speculation over the currency as it doesn't reflect the economic performance of the country
- Worsening of international relations, think of what happened to china when they fixed their exchnage rate to the dollar: america increased their Tariffs for chinese imports in order to limit the 'damages' caused to america because of the chinese export-led growth.

Reply 375

Anjali.Rao

Original post by GiddensFTW

Yes please :smile:

If you could that would be great!

Reply 376

nik2111

anyone know some pro's and cons of being in a monetary union? i know 1 or two but not really in depth

Reply 377

nik2111

Original post by Tariq_3458

yh thats true but in the long run imports will go up and countries do need goods imported this rise could lead to cost pust inflation so yh your right devaulation does mean exports are cheaper but to evualate you can say that it also causes imports to be more expensive

Reply 378

nini27

Original post by nik2111

anyone know some pro's and cons of being in a monetary union? i know 1 or two but not really in depth

Pros:
Can be a major world currency
Maintained price stability (low inflation)
Higher volume of sales : Further economies of scales
Falling unemployment
Lower transaction costs
Higher growth = higher employment = higher income = higher investment
Free movement of people
Price transparency = higher competition
Countries will produce over their Productive Possibilty Curve, but to their Trading Possibility, Curve

Cons:
The better off countries will enjoy the higher growth they have more coparative advantage, and also, they have more spare capacity, so, they have the ability to increase their productivity therefore, they will have higher benefits of economies of scales.
Also, Monetary unions are Very sensible to external shocks if there is a lack of convergence, so once there is an external shock:
- can have negative output gaps
- risk of deflation within the monetary union
- rising unemployment
- Because of the lack of convergency, the exchange rate might be too high for the under performing countries and too low for the better economies