AQA Economics Unit 4 11th June 2013

username1206894

There is no spare capacity if the market clears.

If the market clears this doesnt necessarily mean we dont have spare capacity. We wouldnt have had spare capacity only if the labour market cleared at maximum levels of outputs.

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Reply 81

ineedtorevise127

20

if supply side policies come up
how would you explain that income tax, corporation tax and spending on education are supply side policies?

I know they are SSP but I don't know how to explain it in an answer

Reply 82

kelbel1

Original post by phoebe230253

thank you so much for answering my questions!!! it was really helpful =D!!! you knw how you said our current transfers to EU etc. that would be an outflow taking money out of our economy right?

=) xxxxxxx

Yes, correct, money going out of the economy so it appears as a negative, because we are giving to the EU :smile:

xxxxxxxx

Reply 83

kelbel1

Original post by ineedtorevise127

if supply side policies come up
how would you explain that income tax, corporation tax and spending on education are supply side policies?

I know they are SSP but I don't know how to explain it in an answer

Income tax is a supply side policy because if the government reduces income tax, this will create incentives to work etc which will increase the productive potential of the economy as people are more likely to work. Reducing corporation tax means business have less costs, and are therefore more competitive to other business so they will increase revenue and profits. Reducing corporation tax also attracts FDI because firms in China, Malaysia, India and the other BRICS will think 'Hello, corporation tax in the UK is low, let's set up our new firm there or set up a franchise there because we'll have to pay less in tax'! :smile:

There must be some real life examples of this that would be great, can't think any off the top of my head but i'm sure they're somewhere :smile:

And finally, education is of course supply side policy because increasing education and training increases the abilities of the workforce, can make them more productive to shift LRAS, can get more people into the workforce (through apprenticeships etc) and improves the standard of living in the UK as the workforce is increasing... A round of applause for this explanation, please :wink:

I hope that helps you!

Reply 84

kelbel1

Original post by ineedtorevise127

Why can tariffs/removal of tarrifs be seen as a supply side policy?

One of my teachers was talking about this a while back

Hmmm, really good question, I've been thinking about this for a while haha! If tariffs are removed, for example, if the EU tariff is removed to other countries in the world, trade is easier which means the factors of production are more mobile across border (more movement of labour from country to country and easier movement of capital from country to country, as these are the two main ones). So more people coming into the country increases our productive potential as the potential workforce increases? Also, tariffs are removed by other countries, there is more globalisation and free trade. More globalisation means freer movements, more interdependence, growth or recession in one country effects growth and recession in another country and so on. Oh, and more competition worldwide, increasing the need for dynamic and productive efficiency to keep the domestic countries goods competitive, so increases LRAS. This is the explanation I can think of, not sure if anyone has any better ideas? :smile:

Reply 85

andy0000

Hi,

I was just wondering how UK interest rates are impacted by a country leaving the Eurozone?

Reply 86

ineedtorevise127

20

Original post by kelbel1

Hmmm, really good question, I've been thinking about this for a while haha! If tariffs are removed, for example, if the EU tariff is removed to other countries in the world, trade is easier which means the factors of production are more mobile across border (more movement of labour from country to country and easier movement of capital from country to country, as these are the two main ones). So more people coming into the country increases our productive potential as the potential workforce increases? Also, tariffs are removed by other countries, there is more globalisation and free trade. More globalisation means freer movements, more interdependence, growth or recession in one country effects growth and recession in another country and so on. Oh, and more competition worldwide, increasing the need for dynamic and productive efficiency to keep the domestic countries goods competitive, so increases LRAS. This is the explanation I can think of, not sure if anyone has any better ideas? :smile:

Thanks do you think anything on the EU will come

Reply 87

kelbel1

Original post by ineedtorevise127

Thanks do you think anything on the EU will come

Probably, a lot of talks about it with America recently, possibility of joining the single currency but also of leaving the EU completely with the supposed Cameron referendum.

Reply 88

kelbel1

Original post by andy0000

Hi,

I was just wondering how UK interest rates are impacted by a country leaving the Eurozone?

Our Monetary Policy Committee sets the interest rate in the UK, so they decide what happens to it? At the moment, it's definitely not going to change from 0.5%.

Reply 89

andy0000

Original post by kelbel1

Our Monetary Policy Committee sets the interest rate in the UK, so they decide what happens to it? At the moment, it's definitely not going to change from 0.5%.

Thanks!
But if a country left the Eurozone, my understanding is that our exports will be more expensive for that country, meaning they buy less of our exports, then depending on the significance of that country will depend on how much the exchange rates falls, but this won't necessarily effect interest rates - is that correct?

Reply 90

kelbel1

Original post by andy0000

Thanks!
But if a country left the Eurozone, my understanding is that our exports will be more expensive for that country, meaning they buy less of our exports, then depending on the significance of that country will depend on how much the exchange rates falls, but this won't necessarily effect interest rates - is that correct?

Correct that our exports would be more expensive to them, as they would be no longer be benefitting from the Common External Tariff we benefit from as part of the EU. However, it depends what our export tariff is on the good/goods they want to import, and whether the exports is price inelastic or elastic as to whether they will drop their demand for our exports and therefore buy less (just arguing the other side here), leading to a drop in exchange rates, interest rates etc. But yes, I agree with that. I'm not so hot on exchange rates myself haha :smile:

xx

Reply 91

dani robin

Original post by Parkway Drive

Hey all, how is everyone's revision going?

I'm pretty nervous about unit 4...

Can anyone help me out with the Phillips curve. My understanding of it is a little shady.

For unemployment to fall and inflation to rise, it has to be demand-pull inflation. So is the Phillips curve dependent on inflation being demand-pull?

Also, since supply side policies can affect unemployment without increase inflation, actually reduces inflation, does it just shift the Phillips curve to the left? I'm so confused with this.

Any help is appreciated, thank you in advance =]

Phil Holden on youtube explains the phillips curve very well, you should watch some of his videos.

Reply 92

dani robin

Original post by lad-man

Can anyone find the january 2013 econ 4 exam and upload it please.

There you go mate, hope it helps.

January 2013 QP.pdf157.1KB

Jan 2013.pdf155.0KB

Reply 93

dani robin

Can Anyone explain me The EU? like the benefits and costs of the Uk not joining the Euro's? x

Reply 94

Kieran?

2

Original post by dani robin

Can Anyone explain me The EU? like the benefits and costs of the Uk not joining the Euro's? x

In terms of Europe and leaving/entering I can only really see the question being about whether or not the UK should join the Eurozone - the single currency union. The issue as to whether the UK should leave the EU as a whole is probably too political for this exam

Benefits of joining the Eurozone include:
even greater trade between the UK and other EU member states since the costs of dealing in other currencies (exchange rate costs) will be removed which also helps to lower costs and maintain competitiveness
For consumers it makes it easier for price comparisons to take place - it is much easier to compare Euros with Euros than Euros with pounds - and so they are likely to get a better deal
More certainty/stability for firms dealing with European trade - the current uncertainty as a result of the UK's floating exchange rate means that firms may face unexpected rises in costs when dealing internationally if the exchange rate changes over that time. If we were to join the EU then this would not be an issue.

Arguments against include:
Consumers may in fact end up worse off if the switch over from pounds to euros results in prices rising
The UK would lose all responsibility of monetary policy which would pass to the ECB which can be an issue - we wouldn't be able to use monetary policy to attempt to get us out of recession if we were currently part of the Eurozone for example
Perhaps most importantly is the issue as to whether or not the Eurozone is an optimal currency zone (a safe bet basically) since it is becoming increasingly divergent considering that countries such as Germany have quickly bounced back from the 2008 crisis whereas others such as Spain and Greece are still heavily suffering - the whole idea of the Eurozone is that all the member states' economies are at the same level. This isn't the case anymore and so some argue that the UK should steer clear since the Eurozone has ultimately failed

Reply 95

CoolStoryBroo

15

How is everyone revising?

Reply 96

qr95

20

My last exam econ4 starting revision today had so many other exams which required learning a lot, apart from tutor2u does anyone know where I can find some good notes, for econ3 I found some good ones on getrevising

I need 75 In this paper - 3 days revision

(edited 10 years ago)

Reply 97

kelbel1

Original post by CoolStoryBroo

How is everyone revising?

Best way to revise is practice questions, trust me!

Reply 98

dani robin

Thanks a lot mate!

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Reply 99

charlie7wright

Original post by KirilVlas

If the market clears this doesnt necessarily mean we dont have spare capacity. We wouldnt have had spare capacity only if the labour market cleared at maximum levels of outputs.

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Indeed. Apologies.

Really hope exchange rate comes up as it didn't in January.

AQA Economics Unit 4 11th June 2013

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