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Economics Unit 2 Edexcel - Managing the UK economy Tuesday 19th May 2015 (PM)

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Original post by Mr.Samba
Can someone tell me why a balance of payments deficit would cause the interest rate to fall?


To cause the cost of production to fall and increase the international competitiveness of exports


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Inflation
- a sustained rise in the general price level

Demand Pull Inflation is due to an increase/shift in AD

Cost Push Inflation is due to an increase the COP via an increase in the price of raw materials

Budget Deficit G>T when the government spends more than it taxes?

Current Account Deficit M>X

Current Account contains:

(X-M)

Trade in Goods and Services

Investment Income from shares abroad?

Transfer Payments e.g. Aid or Remittance Payments back home.


Benefits of Eco Growth

Increase EMployment
Increase Standards of Living and decrease poverty
Greater Choice?
Increase international competitveness and economic status and power

Dadv/Eval

High Inflation
Increased Income Inequality- rich get richer since they own most firms poor potentially get poorer since wages dont rise as much
People may spend more on exports
Depends on MPC which in the Uk is 0.6?

This all correct,what needs tweaking?
Original post by Eeyeche
To cause the cost of production to fall and increase the international competitiveness of exports


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Whoops. I meant exchange rate!
Original post by Mr.Samba
Whoops. I meant exchange rate!


Sorry mate repeat the question in full ill answer it hopefully


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Last bit of revision before exam:

http://beta.tutor2u.net/economics/reference/uk-economy-in-2015-exam-revision-webinar
Original post by Eeyeche
Sorry mate repeat the question in full ill answer it hopefully


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How does a balance of payments deficit cause a fall in the exchange rate? :smile:
Check out my eval points for inflation -

Demand-pull inflation shows that there is a high effective demand for goods + services which in turn reflects a strong economy as consumer confidence is high. In turn, signalling to businesses that they should 'invest' into expanding capacity so they can meet future demands. Thus, demand-pull inflation, although it may go above the government macro-economic objective of steady and stable inflation ranging from 1-3%, this will only be in the short-term; as in the long-term, businesses will have the signal and incentive to invest, thus expanding productive capacity/potential which will lead to future economic growth.

In stark contrast, cost-push inflation will be bad for the economy for a multitude of reasons: costs of productions increasing for businesses, translating to businesses 'laying-off' workers/making them redundant. In turn the government's expenditure/spending on JSA is likely to increase, which will give rise to an opportunity cost as government may choose to make "cuts" on other sectors of spending e.g. NHS cuts, cuts to education etc. This strain on the government fiscal budget will further be compounded by the fact that they will be receiving less income-tax/co-orportation tax receipts, which will further strain the fiscal budget and potentially trigger even more austerity measures - such as cutting down on benefits. Thus, leading to a 'widening' income inequality gap which will conflict with the government's macro-economic objective of a more equitable spread of wealth.

However, it could be argued that cost-push inflation itself and the effects of cost-push inflation may very well be short-term. An example supporting this argument would be a sudden surge of a commodity flooding the market due to new findings of quarrays/mine, this sudden surge occured with the French extorting barrels of oil at will from Libya in the latter parts of 2014, crashing the prices from a peak of 97USD per barrel July 2014 to 46USD per barrel January 2015. Thus, the "cost-push" inflationary pressures would have been relieved for businesses leading to a natural recovery (fall) of prices as a consequence of crude oil flooding the market.

Ultimately, the component that is likely to be effected the most as a consequence of both "cost-push" and "demand-pull" inflation is the Current Account Balance of Payments. As prices rise, exports will become dearer for foreign countries for British goods due to a decrease in competitivenenss, simultaneously, the average Briton's marginal propensity to import is likely to further increase. Thus, worsening the current account balance of payments as the percentage of imports will far outweigh exports.

sorry for any grammatical errors, quickly typed answer in 10 minutes,
Original post by badaman
Guys.. Quick Quiz:

1) How is CPI Measured?
2) What is the difference between CPI and RPI?
3) Explain 2 ways of measuring unemployment.
4) Give advantages and disadvantages of the methods explained above.
5) What are the 3 injections and withdrawals into and out of the circular flow of income?

Feel free to post 5 more questions after you have answered these one (short + snappy ones, not long, detailed ones) and myself and fellow users will answer and so on...
A chain of questions! :biggrin:

Good luck peeps.


CPI- expenditure survey(to find the most common things),price survey(to find prices),weightning(rank in order of importance),weighted average price(price x weightning) converted to index no.

CPI- eu measure,representative basket of 650 goods and services in the economy
RPI-a measure of the standard of living,a fairer reflction that the CPI as its uses housing costs aswell...

ILO and Claimant Count(no of people claiming unemployment related benefits e.g. JSA

3 Injections Exports,Government Spending,Investment
3 withdrawals Tax,savings,imports

done most of it,cbb to do all of it as i need to go in a few secs.

MY QUESTION:

Disadvantages of Economic Growth? Go
Original post by Mr.Samba
How does a balance of payments deficit cause a fall in the exchange rate? :smile:


If there is a balance of payments deficit our exports are falling and imports increasing


This means less people are using our currency to buy our exports and we are buying foreign currency to buy their exports

Our pound gets weaker in relation to their currencies.

Remember SPICED
strong pound imports cheap exports dear


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How does a shift in AS to the left affect employment, price level and real gdp??
Original post by yaya sanogo
How does a shift in AS to the left affect employment, price level and real gdp??


It will decrease employment as real output decreases so firms may starting making workers redudant. Price level will increase as firms supply less goods so have to put up their prices to get more profits. Real gdp/out falls because there are workers being laid off therefore less productive capacity in the economy.
Original post by jshep000
It will decrease employment as real output decreases so firms may starting making workers redudant. Price level will increase as firms supply less goods so have to put up their prices to get more profits. Real gdp/out falls because there are workers being laid off therefore less productive capacity in the economy.

ahh, nice one cheers
is everyone feeling confident?
1) Assess the use of fiscal policies to improve the standard of living.


How can I tackle this question?
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ms9
1
Can anyone come up with a summary of the main points that we need to know for the exam?

Thanks!
how does a decrease in interest rates affect balance of payment... what wud ur analysis n evaluation be for this thnx in advance!!!
Original post by fatimazahid
is everyone feeling confident?


Yeah in the sense that I can't learn anymore now it's too late it will stress you out so I just need to get through my spanish and physics exams and then economics last tomoz

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Assess the policies that might be used to prevent deflation in the UK?
Would the policies be increased G and tax cuts so an expansionary fiscal policy as well as monetary policy reducing interest rates to increase spending as well as quantitative easing to increase supply of money to further reduce interest rates
what would the eval points be
Original post by prepdream
1) Assess the use of fiscal policies to improve the standard of living.


How can I tackle this question?


Firstly you wanna talk about expansionary ofc, so.. deacreasing consumer and prod. tax whilst increasing govt. spending.
Then you can suggest what govt. can spend on to imrprove standard of living e.g. Hospitals, education, benefits etc.
After describe how decreasing taxes will improve, simply more disposable income for consumer spending/firms investment therefore circular flow increase and AD increases blah blah
Then depending on how many marks say growth may only be beneficial to high earners and those on lowest income may suffer as prices rise causing increase in income inequality
Original post by Rubberduckiller
how does a decrease in interest rates affect balance of payment... what wud ur analysis n evaluation be for this thnx in advance!!!


Lowering IR means that money flows out of country as it is less attractive to hot money flows because it's not good saving rates.
This means exchange rate decreases so imports become dearer and exports cheaper so more competitive so it should in reality improve the current account balance of payments.

HOW EVER our country has a high marginal propensity to import so could end up worsening it.
Also if the quality of our exports aren't good enough then it won't make a difference

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