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**********OFFICIAL OCR ECONOMICS F582 21st MAY 2014 THREAD************ Watch

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    (Original post by veniceswan)
    does anyone know how CPI is measured?
    I think it's measured on a 'basket of goods' which is weighted to provide an index of what consumers are spending their income on.

    RPI is the same but the 'basket' also includes interest on mortgage repayments and changes in council tax.
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    (Original post by May-o2q)
    Haha I got 79/80, I feel your pain! Good luck


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    Any useful exam tips to get the top, top marks then?
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    https://www.youtube.com/watch?v=_Dmy...TZpwgBASflf4lU

    some of you might find it helpful
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    (Original post by Knowing)
    Int. trade:

    + Allows for specialisation
    + Reduces costs of production
    + Increased productivity -> increased output -> increased employment
    + Greater markets accessible to firms
    + Greater choice by consumers, higher price competitiveness -> lower prices, therefore increase in living standards/higher levels of consumption
    - May lead to over-specialisation
    - Over-dependency on import markets
    - Sunrise/Start-up industries will be out-competed
    - Increased vulnerability to sudden changes in market conditions
    - May be affected by dumping

    Protectionism:

    + Solves problems of free trade
    + Can prevent the sale of harmful products to the domestic country (e.g. diseased poultry)
    - Can lead to retaliation and inefficiency
    - Loss of benefits of free trade
    OMDS thank you ever so much!!!!!! I'm ever so grateful!!!
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    Goodluck! Doing last minute revision now:P
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    Any got any top tips for this exam


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    Can someone please explain INTEREST RATES?! what there affect is... Everything! HELP


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    (Original post by clara16)
    Can someone please explain INTEREST RATES?! what there affect is... Everything! HELP

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    Basics if they are low then people tend to save less and spend more. This is because 'money is cheaper'. So if you want to stimulate AD then you can lower the interest rate. However (for eval) that may not work if, the interest rate is already low (like it is currently) or if there is no consumer confidence.

    Also when interest rates are low firms are more likely to invest too.

    Hope that kinda helps
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    (Original post by clara16)
    Can someone please explain INTEREST RATES?! what there affect is... Everything! HELP


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    Interest Rates

    The cost of borrowing money/reward for saving money, charged/paid by banks.



    Basically high interest rates encourage saving as people get more interest back over time. More saving = less spending and since consumer spending is a component of AD, AD falls.


    Firms also borrow less if interest rates are high because it means it costs more to borrow so if investment decreases (since they don't borrow the money to invest) AD also decreases.


    If interest rates are high people from other countries will want to put their money into our banks as they get more interest. This is hot money. The demand for our pound increases so this strengthens the pound.


    Vice versa for low interest rates.


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    Does anyone think current account deficit will be an essay question?
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    Thank you!




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    (Original post by MichelleQarib)
    Does anyone think current account deficit will be an essay question?
    Nooooooooooooooooooooooooooooooo ooooooooooo
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    Why? Lol
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    i think unemployment and BOP will come up this year.
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    (Original post by MichelleQarib)
    Does anyone think current account deficit will be an essay question?
    Could be, it's quite hard to know unless you've tracked all the papers.

    It's quite a good question though.

    - Identify components of current account (trade in goods/services, income, transfers etc)
    - Explain what a deficit is (exports<imports)
    - Explain that X-M is a component of AD, falling imports reduces AD
    - Draw AD/AS diagram to show AD shifting left
    - Explain effects on price level (it is reduced, deflationary pressure of falling AD)
    - Explain effects on national income (falls due to more money leaving country than entering)
    - Could potentially cause deflationary spiral; consumers postpone consumption in anticipation of further deflation, cuts C component of AD when causes further deflation.
    - Asset prices fall so business and consumer confidence falls
    - The real value of debt rises (ie. someone owes £100 before deflation, then their wages falls due to deflation but they still owe the same amount).
    - You can experience the opposite of fiscal drag; people end up being forced into lower tax brackets, which can mean lower tax revenue for the government but higher levels of consumer expenditure.
    - Dependent on initial position of AD; if there's a massive output gap then deflation will be minimal because AD is already on the flat part of the LRAS curve rather than the vertical part
    - Depends on extent/duration of deficit; unlikely to effect the long run situation if the deficit is small and short lived.
    - Depends on other components of AD. If another component (eg. Government expenditure) rises by a greater amount than X-M falls by, the effects will be far less severe
    - Depends on multiplier, could make effects more severe

    I think that's everything.
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    How would you answer this?

    Comment on whether a cut in taxes will always result in a budget deficit (6)
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    (Original post by ThePrawn)
    How would you answer this?

    Comment on whether a cut in taxes will always result in a budget deficit (6)
    Budget deficit is where Gov spending > tax received.
    So cut in tax would, in theory, result in a budget deficit.
    However, cut in tax if e.g income tax may encourage umeployed to find jobs. This would actually increase tax revenue and contribute to a budget surplus.

    Comment: depends on the extent of the cut, current levels of unemployment etc.
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    In the OCR textbook there is an example paper.

    One question is: using an aggregate demand and aggregate supply diagram, analyse the effect of a rise in the exchange rate on the economy.

    Would AD shift left because imports would rise? Or would it go right because people will have high levels of real disposable income? Confusing...

    And the essay is: Discuss whether an economy would benefit from an increase in its productive capacity. Very general.
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    (Original post by ThePrawn)
    How would you answer this?

    Comment on whether a cut in taxes will always result in a budget deficit (6)
    - Budget deficit = when government expenditure exceeds government revenue.
    - Government finances spending by taxation (VAT, VED, income tax, capital gains tax etc.). If they recieve less taxation, they may not be able to finance all of their neccesary spending.
    - Depends on whether spending cuts can be made; if all of the government's spending it totally neccesary, it's a lot harder to cut it than it would be if they were spending some money on uneccesary stuff.
    - Depends on size of cut; small cuts may not make much difference and can easily be made up for.
    - Depends on whether their is a budget surplus to begin with; if there is a big surplus, the tax cut has to reduce government revenue by a large enough amount
    - Depends what else is happening in economy; if the tax rate is cut, the effects may be negated by an increase in national income/economic growth. Consumers and firms pay less tax proportionally but may pay more tax in terms of actual monetary value. There will therefore be no deficit


    That's all I've got for now, I'll try and think of some more stuff.
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    (Original post by Randomer96)
    In the OCR textbook there is an example paper.

    One question is: using an aggregate demand and aggregate supply diagram, analyse the effect of a rise in the exchange rate on the economy.

    Would AD shift left because imports would rise? Or would it go right because people will have high levels of real disposable income? Confusing...

    And the essay is: Discuss whether an economy would benefit from an increase in its productive capacity. Very general.
    - A rise in the exchange rate reduces foreign purchasing power but increases domestic purchasing power. It's more expensive for foreigners to buy our goods because our currency is worth more relative to theirs, and it's cheaper for us to buy their goods for the same reason.
    - Therefore, exports fall and imports rise
    - X-M is a component of aggregate demand, so when it's value falls, AD will be reduced
    - AD shifts left, reduces price level and national income

    That would be my take on it, that's the easiest way to analyse it. Plus it's very easy to show diagrammatically.

    For the essay...

    - Define productive capacity
    - Draw AD/AS shifting LRAS right
    - Talk about potential for deflationary pressure, plus an increase in potential national income
    - Depends on whether capacity is utilised, could just turn into a big output gap
    - Depends on nature of increase; labour intensive processes will cause higher employment but capital intensive won't.

    There's so much else you could talk about, but I need to go over my notes one more time before the exam. I'll come back if I remember more stuff.
 
 
 
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