Edexcel Economics Unit 4 Global Economy Discussion Thread (10.June.2014)

Someone explain Primary Product dependency for me please.
Need analysis and evaluation.

Sorry, on my computer now so it's easier to type than on my iPad.

Yes, Primary Product Dependency is a country that relies on primary good production for GDP growth (agriculture in particular).

This is one of the argued reasons why their economies are not growing. If you take agriculture for example, the prices are extremely low due to supply and demand. A year of good harvest will push supply out and therefore the price will fall. Demand is inelastic for most agricultural goods.

You can also use the Harrod-Domar model to show why this is a constraint on development (lacking infrastructure etc).

Evaluation - long-run and short run etc. Depends what you're evaluating! You can bring almost anything into it!

Hmm so if i talk about PPD in exam - do i just talked about how weather can disrupt crops and therefore disrupt exports?

or would i need to talk about prebisch singer.

Hmm so if i talk about PPD in exam - do i just talked about how weather can disrupt crops and therefore disrupt exports?

or would i need to talk about prebisch singer.

Indeed. Bring climate into it - it could almost help as supply is limited so the price will increase in the future! Could also be worth mentioning that these countries are typically high indebted, so the government is unable to invest in supply-side measures like infrastructure to help sustain incomes!

Quantitative easing is a bit of a tricky one. Its a monetary policy implemented by the central bank to influence the supply of money and therefore inflation rates.
Say the level of inflation is below the 2% target then the central bank would buy up government bonds to increase their money supply. If the banks have access to more money then they can lend to private individuals and businesses. This should boost aggregate demand as consumer spending would rise.
-Another form of QE is printing money. I don't think this is used by the UK, but it has the same effect as buying government bonds (supply of money increase).
-Another point of QE is that it would cause the supply of that currency to increase. If you draw an exchange rate diagram you would see that as the supply of a currency increases the currency becomes weaker, so it becomes cheaper for international economies to buy your goods. Therefore there is an improvement in the current account. AD would also go up as exports are a component.

Thank you - evalution i could use - if farmers have good weather and produce high output, but then if they have bad weather and produce low output, the output they produced whilst they had good weather can be used to help when they had rubbish weather?

is that right.. - so like they still got something to sell from when they had high output in times when they have low.

Thank you very much! From this, could a possible evaluation point be that quantitive easing will be more inflationary from a Keynesian perspective? (AD increase = demand-pull inflation)

Could also bring in something about Gordon Brown selling off our gold then!

I'd disagree. If they had high output, then the price would fall. There is unlikely to be excess supply because agricultural goods are a necessity. It's better for them to have a bad harvest so that the price is higher and if we apply microeconomics theory, they will have more money to reinvest and grow. I'll draw the model now to illustrate what I mean and upload an image!

Okay mate.

So to illustrate my point:

- Supply is perfectly inelastic as supply is set for a year.
- Demand is inelastic as it is a necessity (draw it a little more inelastic than me).
- Look how much the price fluctuates according to harvests!

This is a silly question - but can I still get an A in this exam without the general knowledge. By that I mean info on other countries etc. I'm not fond of the growth and development stuff and intend to steer clear of it in the exam. It was pretty significant in last years paper, does that mean it won't come up much this year? I have 2 days to revise for this and I need that A! (Or A*, but I don't want to push it)

Do we basically need to have an understanding of monetary and fiscal policy of the UK and is that enough? or do we need to know another country?

Definitely another country. A good evaluation could be to compare (maybe developed versus developing?)

So say if they talk about fiscal deficits, talk about a developing country and why it has such a large one eg. poor tax collection system, tax avoidance, continuous borrowing from government?

Definitely! If you think about it from looking at the theory of this paper, it's essentially what we've learnt, just applied on a global scale. If you do something like that to compare between countries, you could aim for a conclusion of competitiveness, because this is essentially what economics is - who can grow the fastest and how so and should we be concerned or optimistic about up and coming countries? Just think of the stock exchanges where they bid to buy goods at stupidly low prices and think of that on a global scale! You can find lots of stats from the WTO website!