A CA deficit is bad as it means there'll be a reduction in AD, and therefore less output, more unemployment etc etc.

A deficit can be self correcting as lower demand for our exports means a depreciation in our currency which eventually will promote export demand. It's a fluctuating cycle.

thanks!!

Reply 305

cheese94

extremely nervous! need 90 UMS! :s-smilie:

Reply 306

fathimadeen

Original post by iggyDash

here are the list of definition your ment to know according to the spec

aggregate demand
aggregate supply
what is meant by macroeconomic equilibrium in the macro economy
circular flow of income
economics growth
unemployment
inflation
the balance of payments
income redistribution
economic stability
infation
gdp
real gdp
fical policy
monetary policy
supply side policy
tarrif
international trade

hope this helps

What is the definition for ECONOMIC STABILITY? cheers :smile:

Reply 307

Tahooper

Got some of my notes here to do with Government Macroeconomic Policies which may or may not help (if there is any incorrect information please reply):

Fiscal Policy (Taxation & Spending)

•

The main aim of fiscal policy is to increase or decrease AD

•

Fiscal policy can also encourage consumption of merit goods (through subsidies) and discourage consumption of demerit goods (through taxes) [I know merit/demerit goods are Microeconomics but they are still fairly relevant]

•

Increasing AD (Reflationary) = Lowering taxes, increasing government spending

•

Decreasing AD (Deflationary) = Raising taxes, lowering government spending

•

Fiscal policy is used to ensure AD matches AS, to prevent unnecessary unemployment or inflation (known as counter-cyclical; the government is trying to create economic stability by offsetting private spending)

•

Direct fiscal policy = directly changes to taxation and spending

•

Automatic stabilisers = changes in taxation and spending due to economic fluctuations (if unemployment falls, spending on unemployment benefits will decrease - this is because there are less people claiming unemployment benefits and more people have jobs, as opposed to the government actually reducing spending on unemployment benefits

•

Types of tax: income, corporation, VAT, excise duty

•

Types of spending: capital (roads), current (the running of services like the NHS), transfer payments (converting tax revenue into benefits)

•

Budget surplus = when tax revenue is greater than government spending (allows the government to pay off some debt)

•

Budget deficit = when tax revenue is less than government spending

Monetary Policy (Interest Rate, Money Supply, Exchange Rate)

•

Like fiscal policy, monetary policy is designed to influence AD

•

Increase in interest rate = lower AD (due to lower consumption, investment and exports)

•

Increase in money supply = higher AD

•

There is an inverse relationship between changes in the interest rate and money supply

•

Increase exchange rate = cheaper imports, more expensive exports

Supply-side

•

Always designed to increase AS by making labour and product markets more efficient

•

Interventionist policies: Spending on education & training (improves labour productivity and occupational mobility [transferring the skills from one job to another]

•

Non-interventionist policies: Privatisation & deregulation (improves efficiency)

•

Encourage economic activity = Reduce direct taxes and government grants for new firms

•

Discourage economic inactivity = Reduce trade union power and cutting unemployment benefits

Reply 308

fathimadeen

The specification says 'show an awareness of the changes in the UK's pattern of international trade since 2000'

I dont have a clue about this! :frown:

can anyone please help me with this!!!

Reply 309

Tahooper

Original post by cheese94

extremely nervous! need 90 UMS! :s-smilie:

I'm not too sure how UMS works, does 100 UMS = 100%?

If so, and the exam is out of 60, that means you need a whopping 54 marks.

Reply 310

fathimadeen

Original post by KanKan

How is cost-push inflation solved?

Subsidise firms costs (increase government spending

Restrict wages- reduce public sector workers wages

Reduce corporation tax

Hope this helps :smile:

Reply 311

KanKan

Original post by fathimadeen

Subsidise firms costs (increase government spending

Restrict wages- reduce public sector workers wages

Reduce corporation tax

Hope this helps :smile:

Thank you very much :smile:

Reply 312

brightbulb

Please help - advantages and disadvantages of supply side policies? Thanks!

Reply 313

cheese94

Original post by Tahooper

I'm not too sure how UMS works, does 100 UMS = 100%?

If so, and the exam is out of 60, that means you need a whopping 54 marks.

Oh my.. yes that is a lot :s-smilie:

close to full marks! haha probably impossible for me!

Reply 314

wolalala

is there any conflicts of objectives with BOP?

Reply 315

KanKan

Original post by brightbulb

Please help - advantages and disadvantages of supply side policies? Thanks!

Advantages:
- Increase production = increase of output
- Increase in incomes = better living standards
- Increase in investment as producer confidence (usually) improves
- Decrease in unemployment, as more needs to be produced
- Decrease in inflation

Disadvantages (depends on what policies):
- Opportunity Costs
- Usually takes a long time
- Subsidies may be 'soaked up' by firms
- 'Highly educated' may be demanded abroad, and so they leave the country
- Wages are usually sticky downwards
- Depends on how much producers save - may not be enough to encourage investment
- Depends on producer confidence/outlook on economy may still be bad
- May affect budget position
- Less tax revenue when decreasing tax

Any more that I have forgotten?

Reply 316

fathimadeen

Original post by brightbulb

Please help - advantages and disadvantages of supply side policies? Thanks!

Advantages
Lower inflation
Lower unemployment
Improved economic growth
Improved trade and balance of payments
Increasing AS to enables AD to continue overtime without inflationary pressure building up
Higher quality of resources should make domestic firms more price and quality competitive and so improve the country's current account position

Disadvantages
Expensive to operate and no guarantee of success
May have no impact if the economy is already operating with considerable spare capacity
Extra capacity may not be used
Increased productive potential of an economy on its own will not be sufficient in raising economic performance if there is lack of AD

I hope this helped you. Please feel free to correct any mistakes :smile:

Reply 317

hunter786

Original post by iggyDash

Could someone define the following:
-what is meant by macroeconomic equilibrium in the macro economy
-income redistribution
-economic stability
-gdp

BTW these have never came up from what I remember

Reply 318

Tahooper

Original post by brightbulb

Please help - advantages and disadvantages of supply side policies? Thanks!

Advantages: Can reduce demand-push inflation if an economy is operating near or at Yfe (full employment).

Disadvantages: Can be seen as discriminatory because supply-side policies include reducing corporation tax (which allows them to keep more of their profits and maybe spend it on capital goods which will increase AS as it increases productive capacity) but at the same time another supply-side policy is reducing unemployment benefits (which in theory is supposed to encourage people to go out and get a job where they will make more money, but what if there aren't any jobs?).

It's kind of like what is happening today in the UK. The top-rate of income tax is being reduced from 50% to 45% while benefits are being frozen at an increase of 1% per year (which is a decrease in real terms).