Economics Unit 2 prediction for 17th may 2013 :)

Imagine the government decides to increase its spending on welfare benefits. Ceteris paribus this will lead to higher real disposable income for the citizens and hence consumptions is likely to rise (hence an increase in AD).
If consumption is rising this means that demand for firms are rising hence they'll have to increase their capacity to meet the increasing demand and off course this leads to higher employment since the firms need new workers to meet the new demand. (This is the multiplier effect. Initial investing has lead to an even further increase in income)

BUT this is not always the case. Here the government spending may actually lead to unemployment. As the government decides to increase welfare benefits people may find it better to sit home while go out and work. Although consumption is likely to rise then but this could lead excess demand (demand pull inflation)

GDP does not take into account the black markets.
For example in the UK it is estimated that black market makes up 7% of the economy while in Russia about 50% hence it kind of underestimates the living standards.

Also GDP has a very little sense of income distribution. Just because the economy is growing fast doesn't mean that income is being distributed evenly. In fact it is argued that the benefit of economic growth goes to people with top jobs an economy so therefore again its inaccurate.

When we measure GDP between countries we usually turn them into a single currency usually dollar (GDP at PPP). Exchange rates can violate from month to month or year to year. For example if there is a fall in Renminbi (Chinese currency) against the US dollar it might imply that standards of living are falling even though their economy is growing really fast.

Population issues are also a problem (GDP per capita).
GDP might be growing really fast but if the population is growing at an even faster rate then we have problems.

Hope this helps!

If you use evaluation points that are not on the mark scheme do you still get marks? When I do papers I have eval points that are not on the MS so I tend to mark them wrong lol


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That's just the problem for me. How do you expand and go into so much detail to warrant 4-6 marks for the point?
Taking your confidence one for example, how do you turn a standard "income tax decrease won't necessarily encourage spending" to a full-blown 6 mark eval?

Thank you.

I usually can't do 6 marks but I aim for 4:

However a decrease in income tax may not necessary increase consumption, this may be due to the fact that we have just missed a triple-dip recession so consumer confidence is low. This means the marginal propensity to save will be much higher rather than the marginal propensity to consume. Furthermore, although income taxes are falling other things may not be equal so if interest rates are rising then consumption wont increase as mortgage repayments increase.

Its 2 evaluations put into one, but you should be able to get 4 marks for that

Thanks...of course this is helpful...and if you don't mind can you explain me Advantages and dis of the HDI in making comparisons between countries

Gone through every past paper and know all the content but still struggling to answer some of the questions properly!? mainly the 12/14/16 markers. Many of my points dont appear on the markscheme so dont really know what to do!

any advice would be greatly appreciated. bricking this exam tomorrow

I know what you mean, questions aren't worded very nicely.
The way I look at it is by removing the 'fluff' from the question and seeing what its really asking:
"discuss the likely effectiveness of ‘expansionary... fiscal and monetary policies’
(Extract 1, lines 2 to 3) as means of closing the output gap."

From this I get "How can loose fiscal and monetary policy be used to increased real GDP?"
Now that's much more simple than what they wrote!

Just make sure to reference their fluff, so make the link in your answer between output gap closing and real GDP. Don't forget to reference figures and extracts either!

I think the time limit for economics exam is too short. What do u think guys ?

when you think of it like that it does seem a lot simpler to answer!

its frustrating though, at the time of writing my answer, it seems like a legitimate correct point. Then check the MS and boom; there goes another 4 marks

I think the time limit for economics exam is too short. What do u think guys ?

I usually can't do 6 marks but I aim for 4:

However a decrease in income tax may not necessary increase consumption, this may be due to the fact that we have just missed a triple-dip recession so consumer confidence is low. This means the marginal propensity to save will be much higher rather than the marginal propensity to consume. Furthermore, although income taxes are falling other things may not be equal so if interest rates are rising then consumption wont increase as mortgage repayments increase.

Its 2 evaluations put into one, but you should be able to get 4 marks for that

Is this thread for AQA?

Would subsidies and improving healthcare count as supply-side policies?


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