Economics Unit 2 prediction for 17th may 2013 :)
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Original post by dan94adibi
How supportive the MPC have been to help economic recovery.
What an absolute joke of a question that was.
What an absolute joke of a question that was.
What did you write for that one?
Original post by ljh950912
Why did you guys put for the 8 markers for Q1? They were about how a change in the global economy could affect oil price and two costs of trade deficit.
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Posted from TSR Mobile
For the oil one, I said that increasing demand (e.g. from China) combined with its non-renewability led to the general increasing trend, while the price drop around late 2008 may have been because this coincided with the global economic downturn, and thus a drop in demand (e.g. consumers changing their habits and driving less to save money) despite demand being relatively inelastic. Data referenced for both.
And for trade defiict, I put how it leaves the UK very exposed to cost-push inflation from their imported goods (as evidenced by the effect oil prices have on our economy). Then I had a fairly weak second point about how it constitutes net withdrawals from the circular flow of income/is a part of AD (x-m) so this becoming more negative reduces AD.
Original post by tigerz
Uploading a rough unofficial markcheme for question 1 shortly 
Feel free to add/ edit lols
Feel free to add/ edit lolsOriginal post by dan94adibi
Yh sounds right - technically what you said was to aid them with decision making which is what I wished I wrote.
I defined Inflation and the tools available to MPC to control it. Said that the target 2% (±1%). Mentioned that CPI is above its target and that they have a mandate to keep inflation within its target.
Talked about how they've lowered base rate to encourage consumption and investment and drew an AD and AS diagram to show a shift and increase in output.
I said that however if banks have a sense of default then they may not actually pass on the low rates to consumers and businesses.
Talked about quantitative easing. Said how it works and I drew a diagram showing that supply of money in the economy has increased and hence interest rates have fallen but then evaluated saying that it will have inflationary pressure on the economy and since BOE only has mandate to keep inflation within its target then they may hesitate to use this policy and hence not being so helpful towards their economic recovery as they would have to meet their own target first.
Not sure if I'm right1
I defined Inflation and the tools available to MPC to control it. Said that the target 2% (±1%). Mentioned that CPI is above its target and that they have a mandate to keep inflation within its target.
Talked about how they've lowered base rate to encourage consumption and investment and drew an AD and AS diagram to show a shift and increase in output.
I said that however if banks have a sense of default then they may not actually pass on the low rates to consumers and businesses.
Talked about quantitative easing. Said how it works and I drew a diagram showing that supply of money in the economy has increased and hence interest rates have fallen but then evaluated saying that it will have inflationary pressure on the economy and since BOE only has mandate to keep inflation within its target then they may hesitate to use this policy and hence not being so helpful towards their economic recovery as they would have to meet their own target first.
Not sure if I'm right1
Sounds good
I did the same first point as you shifting ad and talked about increase in consumer borrowing, more business investment ect then said it depends where Ad is in relation to AS an also other factors could cancel it out such as the fiscal policy of increasing tax 
Original post by sh7171
Oh yeah What did you write for that one?
What did you write for that one?Check my answer on the last page.
Original post by Farringtonn
Sounds good I did the same first point as you shifting ad and talked about increase in consumer borrowing, more business investment ect then said it depends where Ad is in relation to AS an also other factors could cancel it out such as the fiscal policy of increasing tax
I did the same first point as you shifting ad and talked about increase in consumer borrowing, more business investment ect then said it depends where Ad is in relation to AS an also other factors could cancel it out such as the fiscal policy of increasing tax I really hope so then.
Yesterday I thought I did terrible but after talking to you guys I feel a bit more confident.
Original post by sh7171
Could you add one for question 2 as well????
I didn't do that question
I'll help out if I have all the questions?Original post by Swaany
Overall how did everyone find this paper? Was it unfair?
I'm thinking it was more of a standard paper, AS Macro has very predictable boundaries, it's mostly 62 for A in the summer. So I would expect that.
But then again I'm hoping some 1000 PE students accidentally sat the paper and brought the curve down.
Original post by NabRoh
NR Checking In.
I thought the smaller questions were really tricky. 30 marker was a breeze for me. (Q1) I had multiple facepalm moments walking out of the exam hall thinking "Damn it I should have wrote that"
Also was the index 278?
I thought the smaller questions were really tricky. 30 marker was a breeze for me. (Q1) I had multiple facepalm moments walking out of the exam hall thinking "Damn it I should have wrote that"
Also was the index 278?
Yeah it was but I put 178 as exam pressure got to me :s. Also for the oil price rise and aggregate demand/supply, did you do a SRAS curve or a LRAS? As I did LRAS and I don't think I'll get any marks.
Original post by Brandon_RNS
No worries you could have still picked up 2-4 marks. and it was only out if 6so you can still get an A dont stress
aw, I hope so! But thank you
All the best for your exams too 
Original post by NabRoh
NR Checking In.
I thought the smaller questions were really tricky. 30 marker was a breeze for me. (Q1) I had multiple facepalm moments walking out of the exam hall thinking "Damn it I should have wrote that"
Also was the index 278?
I thought the smaller questions were really tricky. 30 marker was a breeze for me. (Q1) I had multiple facepalm moments walking out of the exam hall thinking "Damn it I should have wrote that"
Also was the index 278?
HAHA trust! They seemed quite weird ( the smaller chunks) and 277.77 but I'm sure they accept 278
also, one of the 12 markers was effects of rising oil prices what was the other? done an unofficial markcheme but can't remember!
So for Q1, (Not sure about the order, here's what I remember please let me know if additions need to be made!)
1) The index which was just...ewww haha (6)
(45-125)/45*100 gave you 177.77 and because the base year was 100, the final index was 100+177.77=277.77 (Got that with some help)
2) Costs of having a persistent growing fiscal deficit. (8)
1) UK losing competitiveness as other countries have switched to buying from other countries, they have fixed contracts so exports have a fairly inelastic demand etc..
2. The UK finding it difficult to grow as exports and imports is a component of AD, having a deficit causes the value to be much lower. Also, when the UK economy is doing bad its better to rely on export led growth from developing countries which are still growing! (This is difficult with a deficit)
3) When sterling falls in value, evaluate the decrease in the CA deficit. (12)
ext1 states the sterling has depreciated by 25%..) When the sterling depreciates, UK goods become cheaper for foreign countries, and imports become more expensive for consumers. This means the deficit will decrease as net exports will increase.
When sterling falls, leakages fall and injections should increase so national income increases.
However only half of this was correct as exports rose by 16% but imports also rose probably due to the fact the UK has a high marginal propensity to import. This means the effect may not be significant as imports increased more than exports.
Also, many consumers switched to imported goods due to the contraction in the UK manufacturing industry, UK manufacturers learnt to compete on brand an quality rather than price early on, so this may mean exports that are cheaper with lower quality are bought in times of slow growth!
4) Using extract 1 explain what a deficit in the current account of goods and services is. (4)
Occurs when the amount of imported goods and services exceeds the amount of exported goods and services. (2 marks ref, something about reducing deficit will lead to growth)
5) 2 factors of the world economy why oil prices might be rising (8)
Supply shocks: Oil is a scarce resources and when supply is low, prices are high due to an increase in value.
This is probably wrong but I wrote that because developing countries are still growing they may have high inflation and appreciating currency which makes oil more expensive.
I think saying something about interest rates being low make oil prices high. (when interest low, spend more, drive more/ produce more using oil, demand is high therefore price is pushed up)
`
6)With reference to Fig1, explain the effects of rising oil prices on the UK economy using an AD and AS diagram (12)
1. refer to rise in oil (2marks)
2. AD/AS digrams (axes, equilibrium, as shifting in and new price/output)
3. AS shifts in as oil is a production cost this means real output falls and price level increases, UK economy faces stagflation (high unemployment and high inflation)
4. 4 mark evaluation: Magnitude of price rise (large), significant effect on AS as oil is required for producing many things and few substitutes are available, if you wanted to you could instead argue that renewable energy like wind turbines are being used instead.
7. How can supply side policies be used to increase economics growth, refer to the use of decreasing corporation tax with reference to extract 2. (30)
6 marks definition/diagram
economic growth: Increase in real/ potential GDP
SSP: Govt policies designed to increase the productive potential of the economy and push the long run AS out.
diagram: label, equilibrium, yfe, as shifting out, AD/AS correct and labelled.
1.reduce corp tax (28-21%), tax on profit falls, higher profits, etc AS shifts out (income works to)
Corporation tax acts as an incentive to people to start their own businesses thus increasing the output of services and goods of the economy (stolen of NabRoh :P)
Makes fiscal deficit larger, investment is small but significant component of AD), ceteris paribus (interest rates increasing so effects cancelled)
2. Reduce/ abolish min wage: cost for firms fall, employ more, more workers= potential increase
Acts as a decentive to work so some may claim instead, this also increases govt costs.
Firms may just buy machinery to replace human capital. Magnitude of wage fall.
3. Training in high demand areas: People now have skills required to fill spare capacity in high demand industries etc AS out.
Time lag associated with training so costs will be high in the short term! Effects not seen for many years. Cost to govt as consumers not willing to pay high amounts, this may mean training not possible as the govt have a large national debt and fiscal deficit.
Finally, If AD crosses AS on the elastic part an outward shift has no effect, real output and price level remains the same (I also drew another diagram to show this)
You could also so, privatisation, reducing trade union, education, deregulation
Evaluations: Magnitude, significance of each component, other things equal, consumer/ business confidence. etc
1) The index which was just...ewww haha (6)
(45-125)/45*100 gave you 177.77 and because the base year was 100, the final index was 100+177.77=277.77
(Got that with some help)2) Costs of having a persistent growing fiscal deficit. (8)
1) UK losing competitiveness as other countries have switched to buying from other countries, they have fixed contracts so exports have a fairly inelastic demand etc..
2. The UK finding it difficult to grow as exports and imports is a component of AD, having a deficit causes the value to be much lower. Also, when the UK economy is doing bad its better to rely on export led growth from developing countries which are still growing! (This is difficult with a deficit)
3) When sterling falls in value, evaluate the decrease in the CA deficit. (12)
ext1 states the sterling has depreciated by 25%..) When the sterling depreciates, UK goods become cheaper for foreign countries, and imports become more expensive for consumers. This means the deficit will decrease as net exports will increase.
When sterling falls, leakages fall and injections should increase so national income increases.
However only half of this was correct as exports rose by 16% but imports also rose probably due to the fact the UK has a high marginal propensity to import. This means the effect may not be significant as imports increased more than exports.
Also, many consumers switched to imported goods due to the contraction in the UK manufacturing industry, UK manufacturers learnt to compete on brand an quality rather than price early on, so this may mean exports that are cheaper with lower quality are bought in times of slow growth!
4) Using extract 1 explain what a deficit in the current account of goods and services is. (4)
Occurs when the amount of imported goods and services exceeds the amount of exported goods and services. (2 marks ref, something about reducing deficit will lead to growth)
5) 2 factors of the world economy why oil prices might be rising (8)
Supply shocks: Oil is a scarce resources and when supply is low, prices are high due to an increase in value.
This is probably wrong but I wrote that because developing countries are still growing they may have high inflation and appreciating currency which makes oil more expensive.
I think saying something about interest rates being low make oil prices high. (when interest low, spend more, drive more/ produce more using oil, demand is high therefore price is pushed up)
`
6)With reference to Fig1, explain the effects of rising oil prices on the UK economy using an AD and AS diagram (12)
1. refer to rise in oil (2marks)
2. AD/AS digrams (axes, equilibrium, as shifting in and new price/output)
3. AS shifts in as oil is a production cost this means real output falls and price level increases, UK economy faces stagflation (high unemployment and high inflation)
4. 4 mark evaluation: Magnitude of price rise (large), significant effect on AS as oil is required for producing many things and few substitutes are available, if you wanted to you could instead argue that renewable energy like wind turbines are being used instead.
7. How can supply side policies be used to increase economics growth, refer to the use of decreasing corporation tax with reference to extract 2. (30)
6 marks definition/diagram
economic growth: Increase in real/ potential GDP
SSP: Govt policies designed to increase the productive potential of the economy and push the long run AS out.
diagram: label, equilibrium, yfe, as shifting out, AD/AS correct and labelled.
1.reduce corp tax (28-21%), tax on profit falls, higher profits, etc AS shifts out (income works to)
Corporation tax acts as an incentive to people to start their own businesses thus increasing the output of services and goods of the economy (stolen of NabRoh :P)
Makes fiscal deficit larger, investment is small but significant component of AD), ceteris paribus (interest rates increasing so effects cancelled)
2. Reduce/ abolish min wage: cost for firms fall, employ more, more workers= potential increase
Acts as a decentive to work so some may claim instead, this also increases govt costs.
Firms may just buy machinery to replace human capital. Magnitude of wage fall.
3. Training in high demand areas: People now have skills required to fill spare capacity in high demand industries etc AS out.
Time lag associated with training so costs will be high in the short term! Effects not seen for many years. Cost to govt as consumers not willing to pay high amounts, this may mean training not possible as the govt have a large national debt and fiscal deficit.
Finally, If AD crosses AS on the elastic part an outward shift has no effect, real output and price level remains the same (I also drew another diagram to show this)
You could also so, privatisation, reducing trade union, education, deregulation
Evaluations: Magnitude, significance of each component, other things equal, consumer/ business confidence. etc
(edited 10 years ago)
Original post by tigerz
HAHA trust! They seemed quite weird ( the smaller chunks) and 277.77 but I'm sure they accept 278
also, one of the 12 markers was effects of rising oil prices what was the other? done an unofficial markcheme but can't remember!
also, one of the 12 markers was effects of rising oil prices what was the other? done an unofficial markcheme but can't remember!
It was a) Index b) Reduction in exchange rate c) Define trade defecit d) World economy one e) Supply side policies.
Original post by Dilzo999
It was a) Index b) Reduction in exchange rate c) Define trade defecit d) World economy one e) Supply side policies.
OMFG oh yeah! editing the mark scheme to add the exchange rate on now. Thank you
Original post by NabRoh
NR Checking In.
I thought the smaller questions were really tricky. 30 marker was a breeze for me. (Q1) I had multiple facepalm moments walking out of the exam hall thinking "Damn it I should have wrote that"
Also was the index 278?
I thought the smaller questions were really tricky. 30 marker was a breeze for me. (Q1) I had multiple facepalm moments walking out of the exam hall thinking "Damn it I should have wrote that"
Also was the index 278?
Yeah i got 278
Original post by Dilzo999
Yeah it was but I put 178 as exam pressure got to me :s. Also for the oil price rise and aggregate demand/supply, did you do a SRAS curve or a LRAS? As I did LRAS and I don't think I'll get any marks.
I did LRAS you will still get the marks
Original post by tigerz
...
Isn't the reason for a drop in corporation tax to incentivise people to start their own businesses thus increasing the output of services and goods of the economy?
Or can it be argued both ways?
Original post by tigerz
3)? was a 12 marker
I think this was something along the lines of "why the UK has a current account deficit", not too sure though.
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