AQA A-level Economics new 7136 - 06, 13 & 19 Jun 2017 [Exam Discussion]

Didnt Aqa techincally give us a question on Financial Markets as Monetary Policy is a apart of that topic?

Thats not setting economics aside, demographic factors are one of the governing dynamics of economics.

There is so much micro to link.

Start with possible market failures:

Asymmetric information- this can lead to moral hazard as only the bankers realise the full extent of the risk involved in a transaction (e.g. originating a sub-prime mortgage) but their incentives are such that they take excessive risk and overproduce certain risky financial products as they stand to gain from this increase in output via commissions but they are not liable to the costs. Moral hazard can also occur in insurance markets. Asymmetric information may also lead to exploitation by a financial institution, selling consumers products that they don't really need but making them believe that they do (e.g. PPI). Thirdly, asymmetric info may cause adverse selection which has quite a long explanation but can lead to rising prices of insurance premiums. Finally, the asymmetry of information between owners and managers can allow excessive risk to build up.

Regulation: improve information standards, scrutiny by the PRA of riskiness of bank assets, make originators and bankers liable to the success of the products they sell

Negative externalities: cost for the taxpayer of bank failure, loss of savings after bank failure, loss of income and lower living standards if the financial crisis leads a wider economic crisis in the real economy.

Regulation:raise capital/leverage ratios to prevent bank failure, raise liquidity ratios to prevent a bank run, provide emergency liquidity to prevent a credit crunch, insure deposits, nationalisation of the banks

Monopoly pricing - money markets are dominated by oligopolists, the large commercial banks, therefore they can exploit their power through collusion as was seen during the rigging of LIBOR.

Regulation:FCA impose a price ceiling or heavy fine offenders or break up commercial banks or improve contestability

Lack of equity - high premiums on insurance are regressive, poor are punished the most as they lose their jobs first are most likely to lose their house and have to bail out the banks.

Speculation and bubbles can also lead to market failure as prices rise far above their intrinsic value leading to a misallocation of resources

EVALUATION: govt failure - unintended consequences, information problems, cost of oversight and admin, slow the recovery, loss of jobs; should the banks be left to fail? etc....

Macro aspects are more obvious:

Credit crunch
Systemic risk
Role in reallocating savings
Monetary policy

There is plenty there which is why I think it is likely that it will come up.

How would you work out the weighted index?

Anyways what do u guys think will be on paper 3 I think it will be something which includes micro and macro l.

(%change in price x weight + percentage change in price x weight) / (adding all weights)

If the last 50 markers are based around financial markets then I've failed.