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# Economics Unit 2 prediction for 17th may 2013 :) watch

1. (Original post by roseanne_12)
I've come across this question from the Jan2012 paper and was wondering if anyone could help me out?

Evaluate the likely impact of higher inflation on 3 macroeconomic objectives.
My first point is that higher inflation could lead to an increase in unemployment because factors of production increase which may mean that firm will have to make some of their employees redundant.
Could I then evaluate this point using the phillips curve and say that according to the phillips curve High inflation=low unemployment? This evaluation point wasn't in the mark scheme....so im not too sure if it's right.
You need to do it the other way round.
You need to say according to the phillips curve high inflation is accompanied by low unemployment. (2 marks) This is one of governments macroeconomic objectives (2 marks).
Draw the phillips curve(2 marks)
Evaluate saying however inflation IF ITS A COST PUSH INFLATION will impose extra costs on firms, hence they may have to adopt a cost saving strategy and therefore they may have to redundant some of their employees.(4 marks)
You need to do it the other way round.
You need to say according to the phillips curve high inflation is accompanied by low unemployment. (2 marks) This is one of governments macroeconomic objectives (2 marks).
Draw the phillips curve(2 marks)
Evaluate saying however inflation IF ITS A COST PUSH INFLATION will impose extra costs on firms, hence they may have to adopt a cost saving strategy and therefore they may have to redundant some of their employees.(4 marks)
Thank for your help.The extract states that oil and food prices have increased so therefore it is cost push inflation.Also,the mark scheme awards marks for stating that unemployment rises as a result this is KAA.
So I would have thought to evaluate this point using the phillips curve.
3. Anyone else in year 13 retaking this in hope of boosting UMS? Do you reckon we could use J curve for Unit 2? It is good for
evaluation of devaluation of currency!
4. Hi, resit student here. Just a quick question, what stuff mustn't we include from Unit 3/4 and what can we include? I am getting so mixed up with Unit 2 and 4
Anyone else in year 13 retaking this in hope of boosting UMS? Do you reckon we could use J curve for Unit 2? It is good for
evaluation of devaluation of currency!
I am in year 13 resitting this module! It specifies on the specification that we don't need to know the J curve so I don't think we would be awarded any marks. I guess it depends on the marker
6. Could someone explain how to expand on a "magnitude" evaluation please?
7. To what extent do demand-side policies lead to conflicts between macroeconomic objectives 30 Marks

How would you do the layout for this essay?

IM SCREWEDDD >.<
8. (Original post by Jack_Smith)
I am in year 13 resitting this module! It specifies on the specification that we don't need to know the J curve so I don't think we would be awarded any marks. I guess it depends on the marker
Hmm, I think I remember my teacher saying the exam is synoptic. I'll ask my teacher tomorrow. It's a nice thing to use for evaluation
9. (Original post by NabRoh)
Could someone explain how to expand on a "magnitude" evaluation please?
magnitude is the size of change. So if the magnitude is large then the effect on the economy will be larger (visa versa)
10. (Original post by NabRoh)
Could someone explain how to expand on a "magnitude" evaluation please?
Basically your point may be: "A decrease in income tax will mean consumers may increase consumption as they have a higher disposable income..etc...AD shifts out...etc
Consumption is the largest factor of AD therefore a fall in income tax will lead to a large increase in economic growth as AD shifts out.

Another one is: 'the govt are cutting spending from 12bil to 4bil in order to reduce their fiscal deficit, your evaluation will be:
Injections into the circular flower will decrease significantly as the govt will reduce spending by 8 billion!

(Original post by Boy_wonder_95)
Those are some really good points thanks! And good luck tomorrow, I'm sure you will doing amazingly with your knowledge
Haha thank you! good luck for stats to!
11. GUYSS, i have afeeling its gonna be balance of payments any ideas/points on this, if this is the 30 marker iv basically failed
12. gonna have a ne ha wah
Hmm, I think I remember my teacher saying the exam is synoptic. I'll ask my teacher tomorrow. It's a nice thing to use for evaluation
Point one define as much as you can these get you around 2 marks each so you define a) Fiscal policy b) Monetary policy c) Demand side policies e) Macro economic objectives.

First point could be that with fiscal policy a cut in income tax can affect AD, this is because with a fall in income tax this will give consumers more disposable income which will increase consumption (Draw graph GIVES 4 MARKS MAKES SURE YOU LABEL EVERYTHING). This conflicts with a macro economic objective which is low inflation. This is because a shift in AD causes price to move from Pe to P1. However the overall effect depends on how much income tax falls by and other components of AD can offset the increase in consumption. Also we assume that MPC (Marginal propensity to consume) Stays the same however that may not be the case as MPC could reduce meaning that we consume less.

That's pretty much it I suppose and you do 2 more and you should get your 30 marks. 2 other points could be changes in interest rates effect the current account and for a final one you can say that Increase in government spending can affect the objective of lowering the national debt.
14. (Original post by hannah1258)
GUYSS, i have afeeling its gonna be balance of payments any ideas/points on this, if this is the 30 marker iv basically failed
Revise for it then .
15. (Original post by Jkizer)
Can anyone confirm whats the relationship between inflation + exports/imports?
If country X has higher inflation country Y, assuming certius paribus will this mean X will likely to import more to Y ?

Thanks =)
Think about it logically, if there is an increase in inflation, this means that the goods are becoming less price competitive and that our goods appear to be more expensive in comparison to foreign goods. As a result we will export less and start to import more because foreign goods will be 'cheaper' (this is only due to increase in inflation)

Hope this helps
16. (Original post by NabRoh)
If the UK currency is strong against the dollar for example that means it will be cheaper for UK citizens to import (as our currency is stronger so worth more) and we will see a reduced demand for our exports (as exports are expensive and not competitive for US citizens)

Can't think of an immediate link between exchange rate and inflation though... :/

edit: Also foreign investment won't necessarily increase the exchange rate but is a main cause for it going up due to hot money inflows.
I guess if sterling depreciates in comparison to the dollar, this means that countries will start to buy our goods since they become cheaper and we will start to import less since it becomes more expensive. Since exports is a component of aggregate demand (total expenditure of all goods or services in the economy at any given price level) this means that AD will increase causing an increase in real output and also in the price level which effectively means that inflation will increase
17. (Original post by davidmizrahi)
I guess if sterling depreciates in comparison to the dollar, this means that countries will start to buy our goods since they become cheaper and we will start to import less since it becomes more expensive. Since exports is a component of aggregate demand (total expenditure of all goods or services in the economy at any given price level) this means that AD will increase causing an increase in real output and also in the price level which effectively means that inflation will increase
Could you explain how an increase in AD will cause an increase in output?
18. What would you get in total in for AS level if you got a B in unit 1 and get a D in this one?? help!
19. (Original post by Boy_wonder_95)
Monetary Policy could also be increasing/decreasing the Money Supply then you could bring QE into it which would get complex.
Always look at the data. In some circumstances we may not be able to decrease our interest rates any further. Current context (ie we are in a recession so even if MPC decides to cut interest rates it is unlikely to have any impacts within the economy) It also depends on the interest elasticity of demand. Banks might fail to pass on cut in interest rates. The poor are more likely to benefit from this whereas savers such as pensioners who are on fixed incomes will suffer due to a cut in interest rates. It is a blunt policy as well so there are unequal impacts in different parts of the country (ie North Greece vs South Greece)
20. (Original post by Poopy)
Could you explain how an increase in AD will cause an increase in output?
When approaching these questions always remember to draw the graphs. If there is an increase in aggregate demand, this means that there will be a shift in the curve outwards (to the right). If you draw the aggregate supply curve you should see that the intersection of the AD curve on the LRAS curve is greater than the initial equilibrium meaning that there is an increase in the price level and real output as well.

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