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

for the 30 marker in question 2:

I defined supply side policies and what the aim of them is etc in an introduction, then drew an as/ad diagram showing the outward shift in LRAS leading to an increase in real output.

then I chose 3 supply side policies, explained how they would increase real output and evaluated them in detail:

I chose:
1.Increased government expenditure on education and training schemes - this would reduce occupational immobility of labour etc etc
2. Privatisation and deregulation - forces firms to become more competitive and efficient so increases the level of real output etc
3. decrease in income and corporation tax - means firms have more money to spend on investment and to employ labour, also a decrease in income tax increases the opportunity cost of being out of work so employment should increase, increasing real output further.

I also said near the end that they could only be truly effective if AD also increased...

sound ok?

PLEASE ANYONE!

I took question 1 and did the 30 marker ask to evaluate demand side policies causing conflicts with macroeconomic objectives or demand side policies causing conficts with macroeconomic objectives?

I because I analysed the conflicts that they caused. Such with inflation, current account and the environment indirectly because of growth.

If it was the first and not the second, should I still score okay?

what did people put for causes of deficit on current account and effects of investment on price level and output?!

what did people put for causes of deficit on current account and effects of investment on price level and output?!

what did people put for causes of deficit on current account and effects of investment on price level and output?!

Weak exchange rate leads to less exports
Decrease in productivity leads to higher cost of production and so cost push inflation and so UK becomes less price competitive

causes of deficit on current account other than productivity:

1. The fact that the UK has inelastic demand for Imports and is a net importer as firms require commodities such as oil which can only be obtained via importing, also domestic businesses can't meet the demand for consumer imported goods as they cannot create valid substitutes.

2.The Exchange rate. Usually the sterling is strong, and a strong sterling would make UK exports less competitive and Imports cheaper for domestic UK residents to purchase, thus the current account deficit will worsen if the sterling is strong in comparison to other currencies.

think they are valid?

effects of the decrease in investment on price level and output:

(I)is a component of AD so AD would shift to the left, LRAS would also shift to the left as less investment means potential output will decrease, so real output would decrease and depending on the change in demand, prices would either increase or remain similar, drew AD/AS diagram, evaluated etc

For causes of deficit, i said strong pound and low income abroad

For investment i said both output and price level decrease

causes of deficit on current account other than productivity:

1. The fact that the UK has inelastic demand for Imports and is a net importer as firms require commodities such as oil which can only be obtained via importing, also domestic businesses can't meet the demand for consumer imported goods as they cannot create valid substitutes.

2.The Exchange rate. Usually the sterling is strong, and a strong sterling would make UK exports less competitive and Imports cheaper for domestic UK residents to purchase, thus the current account deficit will worsen if the sterling is strong in comparison to other currencies.

think they are valid?

effects of the decrease in investment on price level and output:

(I)is a component of AD so AD would shift to the left, LRAS would also shift to the left as less investment means potential output will decrease, so real output would decrease and depending on the change in demand, prices would either increase or remain similar, drew AD/AS diagram, evaluated etc

Weak exchange rate leads to less exports
Decrease in productivity leads to higher cost of production and so cost push inflation and so UK becomes less price competitive

For causes of deficit, i said strong pound and low income abroad

For investment i said both output and price level decrease

What

You mean strong exchange leads to less exports

Thanks for the deficit i said about inflation to exports are less price competitive? i also said about interest rates affecting exchange rates and hot money so exports are more expensive is this correct?

i think i also answered conflicts between demand side policies and macroeconomic objectives..i swear it was that

Question 2 was absolutely amazing LOL. Really happy with how that paper went, hopefully should be an A for it

for falling productivity I talked about the current account deficit - poor productivity compared to other G7 countries would cause a deterioration on the current account as UK exports would become less competitive.

Also it would cause a decrease in real income as extract 1 said people were accepting lower wages to keep their job, so disposable income/consumer spending would decrease, also firms may lay off workers to cut costs to try and become more competitive so it could lead to unemployment.

Also if demand decreased at a lower rate than the decrease in potential output (as the uk would be operating in a negative output gap) it would lead to inflation..evaluated all of these eg depends on the level of consumer confidence in the economy.......inelastic demand for labour so.......can't remember everything.

This would be ok right?