A2 Economics - F585 June 2013

Hey guys anyone help me with these, finding the Estonia data questions really hard:

Comment on some of the consequences of the fast growth that Estonia achieved between 2000 and 2007 (6).

Comment on the factors that might have caused the severe recession in Estonia between 2008 and 2009 (6).

Estonia had the fastest recovery than many other countries that are members of the single currency; comment on the factors that may have helped bring about this (10).

1) Fast growth brought about a rise in material living standards as people experience higher incomes, greater tax receipts meant that there was more spending on health and education and a lot of FDI was attracted because of the growth. However, growth brought inflation, depletion of natural resources and natural capital, increased pollution, MNC's aren't good for income distribution, either.

2) Estonia is a a very trade based, open economy, so when the recession hit the whole of the Eurozone, Estonia saw a very very sharp decline in it's exports, therefore growth plummeted. Capital flight may have also occurred because MNCs couldn't afford to stay in that country. However, Estonia may have made it worse for themselves as they were part of the ERM II at the time which didn't allow them to make a competitive devaluation in order to remain competitive.

3) Geographical position, brilliant for trade with rich Scandinavian countries and Russia next door. High spending on education, good labour force, attracts FDI. Flat rate tax, attracts FDI. Low government debt and budget deficit, attracts FDI. However, FDI is not tied to that country so estonia are very vulnerable to external shocks and capital flight, may be depletion of natural resources, unsustainable growth, inequality caused by MNC's.

I hope this helped :smile:

Reply 541

Markg125

13

Original post by fletchdd02

1) Fast growth brought about a rise in material living standards as people experience higher incomes, greater tax receipts meant that there was more spending on health and education and a lot of FDI was attracted because of the growth. However, growth brought inflation, depletion of natural resources and natural capital, increased pollution, MNC's aren't good for income distribution, either.

2) Estonia is a a very trade based, open economy, so when the recession hit the whole of the Eurozone, Estonia saw a very very sharp decline in it's exports, therefore growth plummeted. Capital flight may have also occurred because MNCs couldn't afford to stay in that country. However, Estonia may have made it worse for themselves as they were part of the ERM II at the time which didn't allow them to make a competitive devaluation in order to remain competitive.

3) Geographical position, brilliant for trade with rich Scandinavian countries and Russia next door. High spending on education, good labour force, attracts FDI. Flat rate tax, attracts FDI. Low government debt and budget deficit, attracts FDI. However, FDI is not tied to that country so estonia are very vulnerable to external shocks and capital flight, may be depletion of natural resources, unsustainable growth, inequality caused by MNC's.

I hope this helped :smile:

Ah that's so clear! Thank you so much!

Reply 542

Teagen

In extract 2, Just to ask, since Latvia is in the ERM 2, is it a fully fixed exchange rate where the exchange rate cannot fluctuate at all or an exchange rate where there is little fluctuation occurrences and that the exchange rate haves to be in a certain boundary range

Just a bit confused

(edited 10 years ago)

Reply 543

student_o201

Original post by Teagen

In extract 2, Just to ask, since Latvia is in the ERM 2, is it a fully fixed exchange rate where the exchange rate cannot fluctuate at all or an exchange rate where there is little fluctuation occurrences and that the exchange rate haves to be in a certain boundary range

Just a bit confused

because it is in the ERM2 it is allow to fluctuate +/- 15%

Reply 544

Robzillor

Thank God it seems I'm not the only one who is struggling with this bull**** unit of economics

Reply 545

Wiseyboy

Original post by Robzillor

Thank God it seems I'm not the only one who is struggling with this bull**** unit of economics

I'm relying on my unit 1 and 2 retakes here!

Reply 546

Commercial Paper

21

Original post by Robzillor

Thank God it seems I'm not the only one who is struggling with this bull**** unit of economics

Don't worry, I'll be the guy who vomits half way through, haha. I'll be so glad when this living hell will be over.

Posted from TSR Mobile

Reply 547

Robzillor

Original post by Wiseyboy

I'm relying on my unit 1 and 2 retakes here!

Luckily I've done relatively well in the other unit's so I only need 50 ums for a B so I should be alright, I'm so happy I don't need an A

Reply 548

Robzillor

Original post by will2348

Don't worry, I'll be the guy who vomits half way through, haha. I'll be so glad when this living hell will be over.

Posted from TSR Mobile

haha once this exam is over I will be very happy as long as it goes okayish, my other exams I am not worried about

Reply 549

hannah695

Original post by kellis94

I do.. What is your email and I can send you mine

could i have a copy of this to: [email protected] thanks :smile:

Reply 550

Wiseyboy

Original post by Robzillor

Luckily I've done relatively well in the other unit's so I only need 50 ums for a B so I should be alright, I'm so happy I don't need an A

Yeah the B is good enough for me. I think the retakes went pretty well, id say I need 60-70 for the B now

Reply 551

student_o201

Analyse why Latvia’s economic situation suffered as a result of the global recession (6 marks) could anyone help me answer this question, thank you :smile:

Reply 552

Commercial Paper

21

Do you think it's likely in this exam they might ask us the role of the IMF/World Bank/WTO just to throw some people?

Posted from TSR Mobile

Reply 553

Wiseyboy

Original post by student_o201

Analyse why Latvia’s economic situation suffered as a result of the global recession (6 marks) could anyone help me answer this question, thank you :smile:

Main points are reliance on FDI and international trade. When the recession came, investors left and so there was not as much availability for growth. Then try and analyse the points more deeply

Sorry, read the question wrong. This is for Estonia

(edited 10 years ago)

Reply 554

mrsmeagol

Original post by Markg125

Hey guys anyone help me with these, finding the Estonia data questions really hard:

Comment on some of the consequences of the fast growth that Estonia achieved between 2000 and 2007 (6).

Comment on the factors that might have caused the severe recession in Estonia between 2008 and 2009 (6).

Estonia had the fastest recovery than many other countries that are members of the single currency; comment on the factors that may have helped bring about this (10).

Comment on some of the consequences of the fast growth that Estonia achieved between 2000 and 2007 (6)
-fast growth led to high inflation in estionia
-reduced their international price competitiveness (exports fell)
-fast growth led to income inequality

Comment on the factors that might have caused the severe recession in Estonia between 2008 and 2009 (6).
- over reliance on international trade, as global financial crisis hit, Estonia was affected more because of this, exports fall and AD decreases
- capital flight (fdi move production to other countries, it causes unemployment, income falls and output is reduced)

Estonia had the fastest recovery than many other countries that are members of the single currency; comment on the factors that may have helped bring about this(10)
-fiscal austerity, freezing public sector wages etc (internal devaluation) reduced labour costs for firms which could be passed on to consumers in the form of lower prices, exports increased causing AD to increase

cant think of another reason for fast recovery

hope this was useful :smile:

Reply 555

mrsmeagol

Original post by Wiseyboy

Main points are reliance on FDI and international trade. When the recession came, investors left and so there was not as much availability for growth. Then try and analyse the points more deeply

Sorry, read the question wrong. This is for Estonia

i thought latvia were reliant on international trade and fdi aswell?

Reply 556

ItzMizzGawjuss

1

Original post by mrsmeagol

Define austerity: This is where government introduces measures to cut back spending and increase taxation. (cutting the budget deficit)

Austerity restores wage and price competitiveness because if for example public sector wages are cut, it would mean firms would have less costs associated with employment, this may lead to firms passing on the reduced costs to consumers in the form of lower prices and therefore increasing international price competitiveness (increased exports etc)

I'm not sure about the wage competitiveness part though

Thanks

This is what I wrote:

Austerity refers to a fiscal policy which is designed to reduce or eliminate a budget deficit which occurs when government spending is greater than tax revenue. There are two ways to eliminate a budget deficit, by an increase in taxations and/or reduction in government spending. Austerity measures tend to decrease aggregate demand in the economy either directly by a reduction in government spending which is a component of AD, or through a squeeze on disposable income, which would therefore reduce consumption as people would have a lower average propensity to consume.

As aggregate demand decreases, demand for goods and services will also decrease, which will lead to wages decreasing. Costs of production may also be reduced which will make prices cheaper and therefore increase international competiveness which will restore price competiveness. As real wage rates decrease, firms will be able to produce at lower prices and in this way will become more competitive with their foreign competitors, restoring wage and price competiveness.

how many marks would this get?
what should I add/take away?

Reply 557

Nitrogen

16

Original post by will2348

Do you think it's likely in this exam they might ask us the role of the IMF/World Bank/WTO just to throw some people?

Posted from TSR Mobile

Possibly, if I remember correctly only the world bank and IMF is mentioned in the case study so I wouldnt bother with WTO if I were you.

Reply 558

Wiseyboy

Original post by mrsmeagol

i thought latvia were reliant on international trade and fdi aswell?

The way I read it is that they needed to borrow a lot to support their fixed exchange rate which was weak. The large amounts of borrowing lead to a balance of payments deficit.
They were also relying a bit on FDI