A2 OCR Economics F585 June 2016

What am I supposed to do with the extracts?? Ive barely annotated them because we didnt have enough time to talk about the extracts and i dont really know what im supposed to do with them tbh. I know you will have to refer to them in the exam but how do i prepare for it.... what stuff do I rememmber/highlight

What points would you make in a question like : comment on the extent to which the change in the effective exchange rate index of US dollars will have contributed to the change in the USA's current account deficit

List of supply side policies:

Privitisation
Lower taxes
Deregulation
Increased education and training
Less bureaucracy
Spending on education and training

Is government spending on infrastructure one?

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Yes

Analyse TWO possible reasons why changes in the effective exchange rate failed to havetheir “expected impact on the US current account deficit”

One reason for the failure of exchange rate movements to eliminate the US current account deficit isthat, despite the change in relative prices, US demand for Chinese products and Chinese demandfor US products were insufficiently price elastic for trade volumes to move significantly. (1)Currency depreciation can boost exports and indeed export revenue, but only if foreign demand iselastic. (1) Similarly, currency depreciation can cause a larger than proportional contraction of demandfor imports, but only if demand for imports is elastic. (1) According to the Marshall Lerner condition,following depreciation or devaluation, a combination of falling prices for exports and rising prices forimports will only solve the problem of deficit if trade volumes move significantly, (1) ie the sum of thetwo elasticities of demand exceed one. (1)

A second reason for a continuing significant US trade deficit may be derived from the fact that USgoods and services may be becoming relatively less competitive in quality terms, thereforerepresenting poorer value for money. (1) This would mean that, at constant prices, less would bedemanded and, therefore, any increase in demand from overseas for US products arising from thefalling prices associated with the US dollar depreciation, would be reduced by the loss of demand from this loss of competitiveness. (1) Although the overall impact of these two influences on the total value of exports would depend on the relative significance of each, and also on price elasticity of demand for exports, the total export revenue would certainly be less than it would otherwise be if US products were becoming less competitive, and so the trade deficit would be sustained. (1)

How would you write about deregulation raising long run economic growth and LRAS?

This would be my structure. I amnot too sure how much marks this will get though, so please leave anysuggestions for improvements. This is using a mixture of Econplusdal G conomicsand the APT's resources

1 - definition of long run growth and supply sidepolicies. I would throw in FDI here too, but not necessary.
2 - explain why supply side isneeded. Do alter this to reason which are mostly mentioned in your argumentbelow. ( i am using the issue of high inflation at 6.5%, dependency on copperprimary commodity issue and "lack of infrastructure" includingroad, railways,etc.

3 - Spendingon infrastructure >> attracts new FDI and new business>>reduces there costs>>> more productive efficiency>>>LRAS shifts right. *insert diagram here* and this can also deals with theinflation problem . Also as extra talk about the poor power supply, thusinvesting in this can also increase attractiveness. (FACT, 90% of Zambia'spower supply in from hydro-electric, which is vulnerable)

4 - DEREGULATION -essentially a similar argument from above as it attracts for FDI and smalllocal businesses. (done through reduction is red tape or otherlegal stuff....) I wouldwrite here that for this to be effective, it has to be a significant amountcompared to other local developing countries.

5- Use of EconomicZone ->> can help move away from the dependency from exports of copperand imports of raw material to other industries. There are further benefitshere.. primary commodities are volatile blahblah...

6 - FUNDING ISSUE - Zambia has ineffective tax system soquestion of where the money will come from. ODA may help but Taxes may be themost likely use.

7- UNKNOWN OUTCOMES...cant predict it will happened... also issues with businesses not beingattracted by economic zone due to high corp tax after the 5 years finish.Resource nationalisation may deter FDI and small businesses.

8- INFANT INDUSTRIES - (WATCH G conomics)

JUDGEMENT
- yes it is effective inpromoting long run growth if method of taxing is made more effective.... - yes as it help move away from primary commodities dependency. however it is not enough alone, monetary policy ( Watch G conomics please) also ECONOMICS ZONES can lead to inequality between regions as it encourages firms to set up in one place. ( perhaps a solution is to create more economic zone in other regions of the country. not too sure about this point) . Sorry for the lack of detail, the page crashed and i got lazy typing it all out again. Do let me know what you please. It will be so helpful . Also if there is anything you like but may not understand because of the lack of detail, message me. G conomics link covers a lot the stuff i mentioned. https://www.youtube.com/watch?v=-WXK_aCPgnI

Guys what are structural issues and how do they affect economic development

Should start a whatsapp group chat ...