To find the initial injection, you first need to calculate the multiplier The calculation needed to find the multiplier is : 1/1-MPC
So in this example, because the MPC is 0.8, the multiplier would be 1/1-0.8 which is equal to 5, meaning the multiplier is 5. Given that the total increase is £350 million, to find the original you would need to divide it by 5 because the multiplier is a increase in national income following an increase in a component of demand.
Initial Injection x Multiplier = Final National Income
I'll do the ones which I can explain 25 is B bond prices and interest rates have an inverse relationship as interest rates increase bond price will fall, interest rates are also the yield you get on something (I think I'm correct in saying this) so if interest rates increase yields will increase too 26 is D, a firm will operate in the short run as long as it's covering its average variable cost, in the diagram p=avc this leaves us with A or D however as the firm is making a loss (earning less then normal profit) as p <ac the firm cannot operate in the long run 10 is A because good x social cost = 290, social benefit = 250 msc>msb = negative externality you're likely to tax it for good y msb>msc = positive externality you're going to subsidise it. Hope this helps
the answer is 10% and it says "approximately" so you be right. How did you do it?
Well, the way I did it was to work out real GDP per capita in 2005 which was obviously 100/100=1. Then work out real GDP per capita in 2014, real GDP was (200/150)*100 which gave you 400/3. Then divide 400/3 by the population of 120 to get 400/360 which was 1.1111... (recurring). So now its just a percentage change of (1.11111...-1)/1 then *100 to get a percentage and this came out to 11.1111...%. But I would have thought the answer would be exactly 10% if that was one of the options.
You could have discussed that post 2008, banks have strict liquidity and capital ratios so low interest rates aren't so useful because the banks aren't able and not so willing to lend in high quantities.
Banks in the UK are restricted by a liquidity ratio, none yet exist.
Mentioning thr ageing population was one of the best things you could have said in my opinion. The ageing population in Japan is one of the key reasons for their prolonged deflation. Monetary policy is likely to be ineffective in a place like Japan since such reflationary policy is unlikely to work due to the MPC of elderly people being far lower than younger people. Also, the fact that it wasn't mentioned in the extract shows good knowledge of Japan's economy - it's a superb evaluative point. I was surprised at how so many people discarded this factor in determining the effectiveness of interest rates because it's a huge factor, especially in Japan and increasingly in the developed world.
I don't necessarily think demographics is to blame, despite it being a very popular explanation in the academic spheres.. An ageing population means a shrinking workforce, which should translate into higher prices. In terms of the demand-side effects of an ageing population, despite low MPCs savings should still be recirculated as funds for investment. However, due to the fact that they are stuck in a liquidity trap and inflation expectations are so low, wages remain suppressed and firms are failing to invest. The workers need a wage rise, yet its hard to do. Ultimately, the BoJ has lost its credibility, monetary policy is basically ineffectual, they are in a debt-deflation spiral and fiscal policy is not doing enough to make up the difference. Helicopter money next?
Anyone think Globalisation or Brexit could come up in the questions in Paper 3? I expected globalisation to come up in the Macro paper because it's a new topic in the new spec but it didn't, so surely they would include it in paper 3?