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

yes because this would reduce the demand for local products and domestic consumers may be more attracted to imports this will in turn increase competition that they may not be able to deal with and they they may eventually have to close down.

Fnks for that
and any idea how it can affect unemployment ?
will there be structural unemployment ?

Analyse the problems that being a member if the euro caused the spanish economy (6)

ideas/plans/pointers????

this could affect unemployment if local businesses closed down thus a loss of jobs, however you could also look at it in another way such that an increase in goods from abroad may increase competition so that local businesses were to beome more efficient. This could deter domestic consumers from imports: they may me more expensive due to extra transport etc. So smaller businesses do well--> increased output--> lower AC---> Economies of scale---> these businesses could then even expand and increase employment through more investment, ie factories etc.

does that make sense?

Comment to the extent to which generous welfare systems are a cause of unemployment

for that one i put

yes- incentives to work go down so unemployment could be a cause of that

no - its infact spains competiveness which is why they are in unemployment

no- market failure so people are getting qualifications but there are no jobs for them

possible due to a economy not having flexable labour markets to account for changes in demand

perhaps a negative multipler effect such as what spain had would lead to unemployment not goverments.

How could the spanish econmy contol inflation specifically cost push inflation, without hindering AD and economic recovery?

How could the spanish econmy contol inflation specifically cost push inflation, without hindering AD and economic recovery?

Mainly supply side policies such as (labour reform) - Long run economic growth eg. Reforming their benefit system. This will push the AS curve out, reducing price and also allowing AD to rise without causing inflation. (multiplier effect)

However;
-This depends on the relationship between AD & AS to begin with.
-Time lag of supply side policies.
-Will face backlash from population as they won't want to accept a welfare system which is less beneficial.

and more i think, hope it helped.. slightly

For your last point is that they had low real insterest rates - The banking crisis - Stopped lending - Biggest industry in spain = construction&tourism - This left huge numbers unemployed as around 1 in 10 are in their construction industry as it's a labour intensive industry and millions are directly/indirectly affected by this industry which accounts for around 15% of Spanish GDP?

Comment on the extent to which increased government expenditure and borrowing is needed to combat the effects of a recession, such as that of spain? (10)

so basically structural unemployment exists?

Also could you say that and increase in unemployment benefits may not increase the number of people back to work necessarily, it could also be other problems such as high corporation tax and income tax that are deterring people from working and being the reason for people being unemployed in the first place before these welfar benefits were put into place?

yh thats right, due to reduce lending compaines no longer want to fund these construction projects so they droped investment halfway and this lead to firms not being able to employ spainsh workers which a high number were relying on for income this then caused unemployment not the incentive arguement which the question suggests.

- Recession caused by financial crisis in 2007/8 (banking crisis), banks stopped lending.
- Background to spain, low real interest rates (low interest rates, high inflation) fuelled economy growth, huge dependency on the construction/housing industry, contributes to around 15% of their GDP. 1 in 10 in this industry.
- Effects of recession on Spain: As banks stopped lending = collapse of industry, Huge unemployment = reduction in AD as less consumer spending etc.

In the short run:
To combat this the gov't need to use fiscal policy(fiscal stimulus) of increasing consumer expenditure with the aim of inflating AD to stimulate growth and increase economic activity as the banks aren't lending etc

To finance this increased expenditure, the gov't may run up debts.

However in the long run:
- This isn't suitable as it's very unsustainable.
- Need supply side policies.

Anyone else please add, unsure how right this is..

the coutries which use the euro can't use quantatative easing can they? as it would affect the exchange rate

just wanted to make sure, too many things going aroung in my head at the moment