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

1. (Original post by sonya786)
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!
B equates to 70-79 UMS
D equates to 50-59 UMS
Upper bound = 138/200 = very high C
Lower bound = 120/200 = very low C

Learn your definitions, diagrams and common evaluation points and you can get way more than a D in unit 2, chin up
2. (Original post by davidmizrahi)
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)
Could perhaps expand on that by saying if expansionary monetary policy was to increase inflation, the poor could become poorer because the government's introduced a cap of 1% increases in benefit payments, no matter how high the rate of inflation is. So real incomes could fall.
3. (Original post by TheMan100)
Could perhaps expand on that by saying if expansionary monetary policy was to increase inflation, the poor could become poorer because the government's introduced a cap of 1% increases in benefit payments, no matter how high the rate of inflation is. So real incomes could fall.
Now that's some hot real world economics!
4. Good luck guys =)
5. guys I don't understand how can increase in oil prices can cause a recession
6. Thanks NabRoh! what would you need out of 80 to get a D?
I'm doing last minute revision
I hope Demand side policy comes up as the 30 marker!!
7. (Original post by davidmizrahi)
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.
But an increase in the AD curve shows an increase in demand from Q1 to Q2 at the expense of an price increase from P1 to P2. This however does not show an increase in OUTPUT, as that is only achievable by an outward shift in the AS curve (or an outwards shift in the PPF)

If I were to shift the AD curve like you mentioned above, I would reach a point on the AS curve which is price inelastic, and any increase in P would not increase Q.
8. (Original post by NabRoh)
Now that's some hot real world economics!
How can higher inflation cause more inequality?

I don't understand what it means when real incomes fall does that mean that purchasing power falls for consumers?
9. (Original post by ineedtorevise127)
guys I don't understand how can increase in oil prices can cause a recession
Oil prices are a cost of production, if prices rocket then production will be greatly affected. AS curve will shift in showing a rise in the general price level (and therefore inflation) and a fall in real output/GDP.
10. guys when can we use a PPF
what's the best way to illustrate a PPF.

Can it be for short term and long term economic growth or is it only one?
11. (Original post by ineedtorevise127)
How can higher inflation cause more inequality?

I don't understand what it means when real incomes fall does that mean that purchasing power falls for consumers?
Real incomes are incomes when effects of inflation are removed. Inflation is the cost of living so the burden of increasing inflation will be greater for those with lower incomes buying just their necessities compared to the well off.

(Original post by ineedtorevise127)
guys when can we use a PPF
what's the best way to illustrate a PPF.

Can it be for short term and long term economic growth or is it only one?
Could be used to show an increase in actual or potential economic growth.
12. guys what is the paradox of thrift and
whats better to have a strong pound or weak pound.
13. (Original post by NabRoh)
Real incomes are incomes when effects of inflation are removed. Inflation is the cost of living so the burden of increasing inflation will be greater for those with lower incomes buying just their necessities compared to the well off.

Could be used to show an increase in actual or potential economic growth.

Thanks man seems like you know your stuff are you an A2/AS student?
14. (Original post by ineedtorevise127)
Thanks man seems like you know your stuff are you an A2/AS student?
Umm thanks
Just an AS student.

(Original post by ineedtorevise127)
guys what is the paradox of thrift and
whats better to have a strong pound or weak pound.
Heard of that paradox but not too sure. I think its if people decide to hold back on their spending because they don't have confidence in the economy they end up reducing consumption and therefore worsening the economy as a result. And so the cycle would continue.

Better to have a weak currency if you're an export-led country (like China's one, albeit artificial)

Btw you're asking a lot of questions in seperate posts, maybe collate your queries into one?
15. (Original post by ineedtorevise127)
guys I don't understand how can increase in oil prices can cause a recession
An increase in oil prices increases costs for businesses which as a result can:
- reduce output and thus profits (reduces tax revenues and economic activity) - may be more significant as they lose economies of scale?
- lay off workers (increasing unemployment) > reduced expendable income > fall in C (in AD) (C largest component of AD - ~65%) > fall in eco growth
- increased costs = increased prices > loss in competitiveness > fall in exports > worsening of the Balance of Payments Current Account

Recession: 2 successive quarters of negative eco growth

Eval:
- May increase economic growth for oil exporting countries - but Dutch Disease effect worsens BofP CA and reduces competitiveness of other exports
- Uniform increase in oil prices (in all countries) may mean that RELATIVELY the prices of exports will remain the same - competitiveness of goods do not change
- Automatic stablisers - reduced exports decreases value of £, making exports more competitive, helps improve current account

etc etc many more points, but this should be enough for a 30 marker
16. (Original post by sonya786)
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 >.<
First microeconomic objectives- Main aim of government to achieve improved economic welfare.

Draw diagram with AD shifting out

First paragraph could be about the conflict of low unemployment with high inflation with demand side policy- government want low inflation and and low unemployment. Then for eval talk about the fact that since 2008, aggregate demand is on elastic part of AS meaning that a shift out of aggregate demand using demand side policies will not increase the price level and cause inflation but will lower unemployment.

Could talk about with a shift out of aggregate demand using demand side policies, means that there is more output meaning there is a conflict with protecting the environment, one the the governments minor objectives. For eval could talk about that in the uk we are a service based economy so economic growth from demand side policy will not cause as much pollution compared to a manufacturing economy such as China. Also you could say that with economic growth, and thus high incomes, new more efficient technology will be developed to reduce amount of pollution produced.

Lastly you could talk about the fact then when demand side policies are implemented aggregate demand shifts out causing growth and increasing incomes meaning we will import more thus worsening the current account deficit. Your eval could be that in order for the government to reduce the deficit they will need to shift in aggregate demand, but this will reduce growth and increase unemployment, instead the government can use supply side policies to shift out aggregate supply e.g. investing in education, which will increase output meaning more can be exported and lower the price level making our goods more competitive meaning we will export more thus having a positive effect on the current account by reducing the deficit.

Hope this helps, good luck tomorrow
17. (Original post by Poopy)
An increase in oil prices increases costs for businesses which as a result can:
- reduce output and thus profits (reduces tax revenues and economic activity) - may be more significant as they lose economies of scale?
- lay off workers (increasing unemployment) > reduced expendable income > fall in C (in AD) (C largest component of AD - ~65%) > fall in eco growth
- increased costs = increased prices > loss in competitiveness > fall in exports > worsening of the Balance of Payments Current Account

Recession: 2 successive quarters of negative eco growth

Eval:
- May increase economic growth for oil exporting countries - but Dutch Disease effect worsens BofP CA and reduces competitiveness of other exports
- Uniform increase in oil prices (in all countries) may mean that RELATIVELY the prices of exports will remain the same - competitiveness of goods do not change
- Automatic stablisers - reduced exports decreases value of £, making exports more competitive, helps improve current account

etc etc many more points, but this should be enough for a 30 marker

What is the Dutch Disease effect?
18. (Original post by ineedtorevise127)
What is the Dutch Disease effect?
When a sudden increase in the value of one export causes an currency to gain value rapidly. This causes the country's other exports to be less competitive (as exchange rates have risen), and over time causes a dependency on the single export.

Its name comes from when the Netherlands discovered large reserves of natural gas in the 1960s which caused a decline in its manufacturing sector
19. Weaker pounds means UK is likely to export more and import less as exports become cheaper and imports become more expensive, which would cause the AD curve to shift to the right. However, it also means that there would be a leftward shift for the AS curve as imports become expensive (meaning that there is an increase in production costs as many capital goods are imported in the UK). Am I right?

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20. And this would mean that low exchange rate will not really lead to economic growth yet it can improve the current account.

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