A2 Economics - F585 June 2013

You can definitely use tradeable permits, ad/as, negative externalities with a tax applied and subsidy diagram in there somewhere

What's that diagram? Never even head of it? What page?

Posted from TSR Mobile

273

Thanks. I remember that now actually. Could anyone explain to me the Accelerator effect in more simple terms than the text book does? And how it interacts with multiplier? And where you might mention this in an essay?

Posted from TSR Mobile

Great list btw

Have you made some model answers by any chance??

Im not trying to "steal" your hard work, but I have been working through them and I want to see if I was any close to what you got.

FYI, if anyone on this thread wants an .mp3 of a lesson I went to covering basically everything the exam board can ask on the last question, just holla!

Is capital flight mentioned anywhere in the OCR book?

Is capital flight mentioned anywhere in the OCR book?

not in mine but i think it basically means money, such as debt flows or FDI, leaving a country.

I don't have a definition but I've put this together..

Capital flight refers to a situation where financial securities, assets or money rapidly flow out of a country due to an event of economic consequence.

Two reasons for capital flight:
- Financial Crisis/Loss of Confidence/Slow Down
- High Rates of Inflation

Posted from TSR Mobile

Feedback on this essay?

1. Comment on the possible effects of maintaining a fixed exchange rate during economic recession
· A fixed exchange rate, like that of the ERM II, occurs when a country tries to keep the value of its currency at a certain level against another currency.
· A fixed exchange rate can benefit an economy suffering from a recession in a few ways:
1. Avoids currency fluctuations and promotes stability: even when a countries growth is low, the lack of exchange rate fluctuations can act as an incentive to invest. For example, even when the Estonia government was in recession in 2008, its open economy and low unit labour costs helped to attract FDI to bring it out of recession.
2. Furthermore, Estonia’s relatively low inflation may be a result of its choice to operate a fixed exchange rate within the ERM II, as governments who allow their exchange rates to devalue may cause inflationary pressures as exports become more competitive and AD increase (diagram).
· However, some countries, such as Latvia, have blamed a fixed exchange rate on their economic struggles. This is because; when an economy is in recession, it is unable to devalue their exchange rate in order to increase its international competitiveness, thus making it more difficult to lift themselves out of recession.
· Overall, the effects depend on the rate at which the exchange rate is fixed. In a time of recession, a low Exchange rate would be the most beneficial, but when countries were beginning to join the ERM II, due to the convergence criteria most economies were in economic growth, so they are unlikely to have opted for a high exchange rate. A fixed exchange rate is more likely to be beneficial is a countries currency is undervalued.
· It may also be argued that the effects of a fixed exchange rate in terms of attracting FDI is less to do the actual exchange rate, than factors such as a favourable tax environment, unit labour costs, and expected future growth, therefore, a fixed exchange rate may not bring as many costs during a recession as first expected.
· It will benefit some industries (I.e: those who tend to rely on imports, as prices are generally stable thus allowing planning) more than others (i.e: export heavy firms).




Thanks