Economics Unit 2 prediction for 17th may 2013 :)

That my friend is spot on...that should definately guarantee 4 marks...however is there a huge importance of relating questions to present situations?

Never got taught this but saw it in a book, what is the Accelerator? And how is it linked to investment?

Does anyone have any tips on how to NOT run out of time?! I always run out of time and end up rushing. Timing is quite crucial.

Also, this may seem like a silly question but how do I know whether to draw the SRAS or LRAS?! Diagrams are my weakest point, gah!

accelerator effect - the principle states that a given change in demand for consumer goods will cause a greater percentage change in demand for capital goods

Basically, Consider an industry where demand is rising at a strong pace.
-Firms will respond to growing demand by expanding production and making fuller use of their existing productive capacity. They may also choose to meet higher demand by running down their stocks of finished products.

If they feel that the higher level of demand will be sustained – they may choose to increase spending on capital goods such as plant and machinery, factories and new technology in order to increase their capacity. If this investment goes beyond what is needed simply to replace worn out, fully depreciated machinery, then the capital stock of the business will become larger.

A good example might be the surge in capital investment in wind turbines due to the super-high level of oil and gas prices and a rising market demand for renewable energy. In this case, strong demand created a positive accelerator effect. But this can also go into reverse e.g. during an economic slowdown or recession. World oil prices have collapsed and many wind farm projects have been scaled back or postponed.

Similarly the sharp fall in UK motor car production is also leading to a reverse accelerator effect with planned investment spending subject to severe cut-backs and many jobs lost.

Never got taught this but saw it in a book, what is the Accelerator? And how is it linked to investment?

Guys... can U please help to make me full understand of the following to evaluate any answer..
.Discussion of the size of the multiplier
.Time lag Effects
.Depends on the shape or the AS curve
.Other things might not be equal.....
PLEASE CAN U HELP ME.... I NEED TO GET FULL EVALUATION MARKS AS WELL AS KAA MARKS...cox i didn't do my unit one Well

I'm hoping one of you can help!! This is a re-sit for me after getting 86 UMS last June (hoping for those extra few marks to take the pressure off unit 4). As far as I'm aware, my knowledge is all there.
Do any of you find the edexcel mark schemes to be somewhat ambiguous? I find a lot of the answers are completely unrelated!
Let me give you an example:

January 2012 Question 2, b:
(iii) In light of the information provided, assess the case for an increase in the base interest rate set by the Monetary Policy Committee.

Can anyone tell me what the difference between CPI and RPI is and why the figures are always so dramatically different?

Oh I see thanks! So basically the accelerator effort is similar to the multiplier effect it's to do with investment and capital goods. Is it more of a general point or an evaluation?
And what does it depend on? For example multiplier depends on leakages.

Its what would be called a "bear trap". If I looked at it for the first time I would have done what you did. But then you have to consider the fact that it says "assess the case", this means it doesn't necessarily want the standard "what would a change in interest rates do to inflation?" but really they're asking "what reason would MPC have for changing the interest rates?"

If you consider that then the mark scheme kinda makes more sense (I hope)
Hope I helped!
-NR

Never got taught this but saw it in a book, what is the Accelerator? And how is it linked to investment?

does anyone know where I can find a good definition list for ECON2?

I'm still not convinced in the slightest I'm afraid!
The only part of the mark scheme I can see as relevant to the question is the fact that the inflation target is currently above the target rate set by the MPC, so it needs to be adjusted?

Can you bullet point how you'd write an answer?

Many thanks in advance

Okay, as you know evaluation is key.

I assume you know what the multiplier effect is? All you need to talk about is how far these effects spread - i.e. they say a reduction in income tax will lead to increased disposable income, which will lead to increased consumption, business investment, thus AD... but will it get this far? etc...

Time lags are very simple. You don't need to expand on them much to be honest. Lets take an example of education and training as a supply side policy. The time lags can be decades - it takes a while for people to become educated. Additionally, time may be spent on designing new schools etc, and these are not 5 minute jobs.

The shape of the curves is talking about elasticities. For example, a shift in AD has a much higher effect on the price level when it is near full employment (when AS becomes more inelastic).

And the final point reverts back to 'ceteris paribus' - i.e. all other things being equal. In your analysis, it is good to make this point. Going back to a previous example, a reduction in come tax, ceteris paribus, will lead to an increase in consumption. However, in your evaluation you can state that other things may not be equal. For example, interest rates may go up meaning mortgage repayments are higher, or VAT may go up meaning consumers will not spend more...

Increasing investment on education clashes with fiscal/ssp right? since government expenditure is required but AD and AS increases?