AQA Economics Unit 4 11th June 2013

Any ideas about the EU question guys?

Here's something that my teacher made for our class outlining what has come up in the previous years. Plus at the bottom she has made her predictions for what will come up for this year. Obviously there's no guarantee that it's going to be correct but she did correctly predict one of the topics in both the unit 2 and 3 exams in january.

Also can some please explain the J-curve? Does it show that devaluation may worsen deficit in the short run but will eventually work in the Long run ? thank you!! =)

I have a question about the balance of payments, is the main structure of it the current account and financial account ? do the direct overseas investment, portfolio invest, long term and short term capital flows all come under the financial account side?

thanks !! =)

ECON4 is so much less hassle than ECON3...

Financial account is long term (portfolio investment and FDI from other countries into the UK) and short term capital flows (hot money), so yes, you're right, and that is all that comes under Financial. The Capital account is unimportant for this Unit 4 but you must understand it's capital from people leaving and entering the UK, and any Government transfers out of the country, like for foreign aid to other countries. The current account is everything else you have learn, so the balance of trade in goods and services, net income flows (investments, profits etc from our firms in other countries coming back to the domestic country, and investments, profits etc going from, for example, Malaysian firms which have set up in the UK going back to their home country), and lastly on the current account, current transfers, which is our transfers to organisations like the EU, which we make a contribution to because we are part of it (and a bloody large contribution at that, compared to some of the other countries in the EU!!!). Hope this helps, lovely!

Indirect taxes such as VAT are examples of regressive tax because the poorer pay a larger percentage of their income on these taxes. Other examples include council tax. The extent to which it increases the problem of poverty depends on the level of taxation set by governments on regressive and progressive taxes.

It is argued that increasing progressive taxes will result in a more equitable distribution of income. However, if taxes are too progressive it may result in a loss of incentive within firms and could potentially increase absolute poverty, even if relative poverty is slightly reduced.

-VAT is regressive tax because poor people feel the impact more than rich people due to having to pay a bigger proportion of their income on VAT

-In the UK the tax is like 20% of your income up to like £37k then 40% up to £150k then 50% over £150k making it progressive. So flat tax is when a country decides to have a certain percentage e.g 25% regardless of your income.

Progressive tax tends to redistribute income from rich to poor, because rich people pay a higher percentage that pays for poor peoples welfare benefit

VAT redistributes from the poor to the rich because the VAT money goes on things such as roads and airports that benefits the rich more than the poor

Hello, i have a problem understanding the second definition of full employment (the first one is the Beveridge's: when 3% of Labour Force is unemployed). They say that "full employment occurs at market clearing wage rate, at which the nr of workers wishing to work equals the nr of workers employers wish to hire" -quoted from the textbook. However, the labour marker can "clear" at many different points, not necessarily when the economy is not on it's PPF. By their second definition, if we are in a deep recession producing far from our LRAS Curve, we can still have full employment, considering the labour market clears. What am i missing?

Full employment occurs when the number of people who are economically active are in work (ie. no involuntary unemployment). However, do not confuse full employment with 0 unemployment, because of frictional unemployment there will always be a time when there is some unemployed workers. If a country is in a deep recession, wage rates are usually lowered and so many people will not be willing to supply their labour at the current wage rate and are out of work voluntarily. In this case, if all those who were willing to supply their labour at the lower wage rate were in employment, the market would clear and full employment would be achieved.

Yes i am aware of the problems of structural and frictional unemployment, which will not allow unemployment figures to reach absolute 0. So if in a recession the market clears, full employment is achieved. But there is still spare capacity as we are not producing on the LRAS curve, which means we are not at full employment levels. The logic tells me that the full definition should be like this: Full employment is when labour market clears and no spare capacity exists (or we are producing on LRAS).