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Edexcel AS Economics (New Spec) Unit 2 - 23rd May 2016

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Original post by Beccatenney
so far ive got:
policies to reduce inflation
causes of increased inflation
effect of increased inflation
policies to control inflation
effects of economic growth
effect of increase in interest rates
reasons for uk current account deficit
effect of a fall in exchange rate
role of supply side policies (with examples)
role of government expenditure
policies to maintain a stable economy
importance of productivity
explain role of fiscal policy
explain role of monetary policy

does anyone have any more examples of essay titles???


Policies to achieve balanced current account
Original post by harryleavey
The question was the trade offs of unemployment with inflation. I did not notice anything about full employment being already achieved??
Hence why I feel the Philips curve alone explains the trade off.

I think we both know what is going on here anyway! :smile:
Hopefully this clears things up @Diastal


Oh I see why - it says full employment in the question! In the case of unemployment, your point is entirely valid :smile:
Original post by harryleavey
Policies to achieve balanced current account


what points could you make for this?? sorry for all the questions...
Original post by Bruce267099
To what extent do demand side policies conflict with macroeconomic objectives?
To what extent do supply side policies conflict with macroeconomic objectives
To what extent do demand side policies and supply side policies conflict?


please could you explain some of the points you could make for these?
Original post by rosemondtan
Oh I see why - it says full employment in the question! In the case of unemployment, your point is entirely valid :smile:


Ahh yes, my mistake. I just looked at 'employment' and 'inflation' and just thought of the Philips trade off
Original post by Beccatenney
please could you explain some of the points you could make for these?


Demand Side:
Fiscal or Monetary
You can just evaluate with other objectives which wouldn't be acheived if AD rose. e.g environment, income inequality...
Original post by Beccatenney
what points could you make for this?? sorry for all the questions...


Economic growth and environment

This will result in more production and so employment will rise. This will lead to higher incomes and so consumption will increase and so there will be more litter.However as there is economic growth firms will be able to invest in environmentally friendly methods of which will better the environment.

Economic growth and the balance of payments

This will result in higher income and increased consumption, so there will be more imports, which will worsen the current account.However economic growth will also cause investment which will increase productive efficiency, leading to an increase I'm quality and more exports, improving the current account.

Full employment and environment

This will lead to more people working and so production will increase and so litter will increase as well as travel, causing pollution.However this employment will result in more taxes, of which could be spent on the environment.

Economic growth and income distribution

This will lead to higher incomes, as people in higher positions tend to be paid more in wage increases so there will be unequal distribution.However they will have to pay more tax, which will go back to the unemployed in the form of benefits.

Low inflation and the balance of payments

When achieving low inflation interest rates will increase. This will attract hot money and so it will cause an appreciation in the exchange rate, reducing exports and increasing exports, worsening the current account.However these both work well together, as low inflation tends to lead to stable prices, leading to increase competitiveness, improving the current account.

Full employment and low inflation

This will lead to full employment and increased spending causing demand pull inflation. It will also increase employment, leading to increased wages and cost push inflation. Furthermore it will lead to high interest rates, reducing spending and investment and increasing unemployment.However during a recession there was high inflation and high unemployment whereas now we have low inflation and low unemployment.

Conflictions of Macroeconomic policiesReflationary

Fiscal policy and Monetary policy

Aggregate demand will shift to the right. This was decrease inflationary pressures and so the monetary committee will have to increase interest rates to counterbalance the effect of the fiscal policy.

Supply Side Policy and Reflationary Fiscal Policy

By using the SSP to try and make the workforce more productive education might be improved. This will require high levels of government spending having an impact on the fiscal policy. Added to that if the time spent in education is increasing to improve human capital the government won't receive tax revenue, again affecting the fiscal policy.

Monetary Policy and Supply Side Policy

If interest rates rise this will make borrowing more expensive. It will also mean there is more to pay back on existing borrowing. Firms who have borrowing will now find their costs have increased and will not be able to produce as much shifting aggregate supply to the left having an impact on the supply side policy.
Original post by Beccatenney
please could you explain some of the points you could make for these?


The points i replied to you with are straight from from my notes so if anythings unclear just reply again. :biggrin:
(edited 7 years ago)
Original post by Beccatenney
what points could you make for this?? sorry for all the questions...


You could use demand / supply side! Assuming current account is in deficit, you would use contractionary fiscal and monetary policy. If it's a current account surplus, you'd use expansionary fiscal and monetary. However, you could mention conflicting policies as an evaluative point since monetary policy is controlled by the Bank of England and fiscal is controlled by the government
Reply 69
What policies can be used to correct the trade deficit?
Original post by Diastal
What policies can be used to correct the trade deficit?


Demand side: contractionary fiscal and expansionary (which could have other macroeconomic trade offs and other non price factors affecting level of exports)

Supply side (which takes time and causes short run increase in AD)
Original post by Diastal
What policies can be used to correct the trade deficit?


To improve the trade deficit you want to export more and so you need to reflate the economy. So a reflationary monetary (cutting interest rates) or a relfationary fiscal (by decreasing tax or increasing government spending).
(edited 7 years ago)
Original post by Beccatenney
what points could you make for this?? sorry for all the questions...


Imports and Exports:

To correct current account deficit (simply: imports>exports, although current transfers and investment income also makes up current account)

To structure this essay:
Price-factors and Non-price factors

Price Factors:

Monetary policy to change interest rates. i.e Lowering interest rates would reduce hot money (foreign saving money in UK banks). This would reduce demand for the pound. Causing depreciation. This would make imports more expensive, improving the current account balance.

Policies to reduce price level (e.g contractionary fiscal or contractionary monetary) hence making exports cheaper and more competitive. Increased exports improve current account balance.

Tariffs on Imports to reduce demand for imports


Non-price factors

e.g customer service, high quality goods, unique products... All of which would make exports more competitive, improving current account balance. Germany is an example of a country with a current account surplus as a result of non-price factors

Hope this helps
Reply 73
Original post by Bruce267099
To improve the trade deficit you want to export more and so you need to reflate the economy. So a reflationary monetary (cutting interrst rates) or a relfationary fiscal (by decreasing tax or increasing government spending).


Wouldn't using reflationary monetary policy increase AD, and so price of exports increase? So how exactly does that improve the trade deficit?
Reply 74
[QUOTE=harryleavey;65028719]Imports and Exports:

To correct current account deficit (simply: imports>exports, although current transfers and investment income also makes up current account)

To structure this essay:
Price-factors and Non-price factors

Price Factors:

Monetary policy to change interest rates. i.e Lowering interest rates would reduce hot money (foreign saving money in UK banks). This would reduce demand for the pound. Causing depreciation. This would make imports more expensive, improving the current account balance.

Policies to reduce price level (e.g contractionary fiscal or contractionary monetary) hence making exports cheaper and more competitive. Increased exports improve current account balance.

Tariffs on Imports to reduce demand for imports

Non-price factors

e.g customer service, high quality goods, unique products... All of which would make exports more competitive, improving current account balance. Germany is an example of a country with a current account surplus as a result of non-price factors

Hope this helps

How could you evaluate this?
Original post by Diastal
Wouldn't using reflationary monetary policy increase AD, and so price of exports increase? So how exactly does that improve the trade deficit?


Interest rates will fall, borrowing is cheaper, more investment, more productivity, more global competitiveness and therefore more exports.
(edited 7 years ago)
Hi!
I have how marks are rewarded in the different levels of questions, I thought this may be useful:

k= knowledge (definitions), p= application (reference to data as a quote from the extract or from graphs/diagrams), a= analysis (knowledge about topic, linking it together, explaining why) and e= evaluation ('however, it depends...' should be justified- chain of reasoning -Basically a sort of counter-argument, or saying the bad effects of a policy etc.)

Explain/calculate (4 marks) k=2, p=2
Explain (5 marks) k=1, p=2, a=2
Explain (6 marks) k=2, p=2, a=2
Assess (10 marks) k=2, p=2, a=2, e=4
Discuss (15 marks) k=3, p=3, a=3, e=6
Evaluate (Save the best 'til last- 20 marks) k=4, p=4, a=6, e=6

REMEMBER! If in doubt, draw a diagram and label the axes correctly (y-axis= price level, x-axis= RNO)

I also have some goody evaluation points that you can basically use for any question, if you want them too.
Have fun and good luck!
Original post by Diastal
How could you evaluate this?


Evaluation of monetary policy to affect exchange rate:
would depend on PED of imports and exports (i.e high price of imports may not reduce demand if PED for imports is inelastic - such as oil)

Evaluation of making exports cheaper
Depends if other economies have cheaper imports/more competitive exports
Depends on state of world economy: our exports may not be bought if there is an EU crisis for example

Tariffs on Imports
May stimulate a price war
Depends on marginal propensity to import or PED for imports
Depends on exchange rate
Original post by Bruce267099
Economic growth and environment

This will result in more production and so employment will rise. This will lead to higher incomes and so consumption will increase and so there will be more litter.However as there is economic growth firms will be able to invest in environmentally friendly methods of which will better the environment.

Economic growth and the balance of payments

This will result in higher income and increased consumption, so there will be more imports, which will worsen the current account.However economic growth will also cause investment which will increase productive efficiency, leading to an increase I'm quality and more exports, improving the current account.

Full employment and environment

This will lead to more people working and so production will increase and so litter will increase as well as travel, causing pollution.However this employment will result in more taxes, of which could be spent on the environment.

Economic growth and income distribution

This will lead to higher incomes, as people in higher positions tend to be paid more in wage increases so there will be unequal distribution.However they will have to pay more tax, which will go back to the unemployed in the form of benefits.

Low inflation and the balance of payments

When achieving low inflation interest rates will increase. This will attract hot money and so it will cause an appreciation in the exchange rate, reducing exports and increasing exports, worsening the current account.However these both work well together, as low inflation tends to lead to stable prices, leading to increase competitiveness, improving the current account.

Full employment and low inflation

This will lead to full employment and increased spending causing demand pull inflation. It will also increase employment, leading to increased wages and cost push inflation. Furthermore it will lead to high interest rates, reducing spending and investment and increasing unemployment.However during a recession there was high inflation and high unemployment whereas now we have low inflation and low unemployment.

Conflictions of Macroeconomic policiesReflationary

Fiscal policy and Monetary policy

Aggregate demand will shift to the right. This was decrease inflationary pressures and so the monetary committee will have to increase interest rates to counterbalance the effect of the fiscal policy.

Supply Side Policy and Reflationary Fiscal Policy

By using the SSP to try and make the workforce more productive education might be improved. This will require high levels of government spending having an impact on the fiscal policy. Added to that if the time spent in education is increasing to improve human capital the government won't receive tax revenue, again affecting the fiscal policy.

Monetary Policy and Supply Side Policy

If interest rates rise this will make borrowing more expensive. It will also mean there is more to pay back on existing borrowing. Firms who have borrowing will now find their costs have increased and will not be able to produce as much shifting aggregate supply to the left having an impact on the supply side policy.


why does increased employment lead to increased wages?
Reply 79
Original post by Bruce267099
Interest rates will fall, borrowing is cheaper, more investment, more productivity, more global competitiveness and therefore more exports.


How does that result in greater competitiveness? Demand for the exports will not increase, only supply.

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