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    (Original post by Wish)
    Why does fall in UK competitiveness cause lower economic growth?
    Economic growth is defined as the total output of goods and services in an economy. If the UK isn't competitive, there will be less demand for our exports. Unless these can be sold in the domestic market, output and hence economic growth will decrease.
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    (Original post by All at once)
    Whats the difference between the nominal and real exchange rate?
    The nominal exchange rate is simply the value at which one currency can be exchanged for another. The real exchange rate is the nominal exchange rate multiplied by the ratio of UK to foreign prices.

    It is NOT simply the exchange rate adjusted for inflation.
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    Thanks for the quick response. Here's another problem of mine:

    (a) Between 1999 and 2001 the UK had a fiscal surplus but from 2002 there has been an increasing fiscal deficit. Examine the likely causes of this trend.
    For 1999-2001, factors include:
    • Labour Government sticking to Conservative public spending plans
    • Stealth taxes e.g. on pension funds
    • Growing economy resulting in higher tax revenues
    • Fiscal drag
    From 2002, factors include:
    • Public spending splurge on health, education
    • Lower than expected tax revenues
    Slowdown in economic growth from 2005
    What has caused the slowdown of growth in 2005??
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    *sigh*, June 2005, section A, question 3 is my purrfect question.
    a) Examine the reasons why a country may want to restrict imports. (40)
    b) Evaluate the likely implications of an increase in protectionism on a country's economy (60)

    I would actually punch the air in joy if I got that question or similar tomorrow morning.
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    (Original post by hmjessop)
    The nominal exchange rate is simply the value at which one currency can be exchanged for another. The real exchange rate is the nominal exchange rate multiplied by the ratio of UK to foreign prices.

    It is NOT simply the exchange rate adjusted for inflation.
    philip allan is great
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    (Original post by synergy.)
    philip allan is great
    Haha how can you tell?! Basically my notes aren't great, mostly print outs from the internet so I was kind of relying on that and this thread

    But that wasn't copied out of the book, that was off the top of my head!
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    (Original post by chidona)
    *sigh*, June 2005, section A, question 3 is my purrfect question.
    a) Examine the reasons why a country may want to restrict imports. (40)
    b) Evaluate the likely implications of an increase in protectionism on a country's economy (60)

    I would actually punch the air in joy if I got that question or similar tomorrow morning.
    yea, i'd totally cane that question, finders crossed something similar comes up
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    (Original post by chidona)
    *sigh*, June 2005, section A, question 3 is my purrfect question.
    a) Examine the reasons why a country may want to restrict imports. (40)
    b) Evaluate the likely implications of an increase in protectionism on a country's economy (60)

    I would actually punch the air in joy if I got that question or similar tomorrow morning.
    Same here, time to pray methinks. !
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    helpies....which part of the tariff diagram depicts the welfare loss and how do i elaborate on this point??
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    What 4 points would you put for the effectiveness of supply side and fiscal policy to correct deficit on current account?

    - Education and training to improve level of human capital and quality, increase productivity. Eval = Implementation and time lags so no good in short run?

    - Reduce unemployment benefits and lower tax rate to get more people into work and improve labour market flexibility, therefore lower wage levels. Eval = low wages must be matched by high productivity, also inequality may occur due to cut in benefits?

    - Offer tax incentives to firms to invest into research and development and improve quality and design, also subsidies and tax incentives may attract MNC's etc. Eval = mnc's may be footloose or lack of competitiveness due to exchange rate and not quality?

    - Improve competition via less red tape and competition commission and privatisation Eval = May already have fairly low regulation and cannot privatise any more industries?

    Or would you go about it the other way in lowering AD by increasing income taxes and less government spending which would deflate the economy and reduce demand for imports?
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    (Original post by Jasia)
    helpies....which part of the tariff diagram depicts the welfare loss and how do i elaborate on this point??
    The triangles either side of the government revenue. This is a deadweight loss because the welfare simply doesn't go anywhere.
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    (Original post by chidona)
    *sigh*, June 2005, section A, question 3 is my purrfect question.
    a) Examine the reasons why a country may want to restrict imports. (40)
    b) Evaluate the likely implications of an increase in protectionism on a country's economy (60)

    I would actually punch the air in joy if I got that question or similar tomorrow morning.
    I agree that's a good question. I'm hoping that with a choice of 3 at least one has to be good, hopefully exchange rates or something similar for me.
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    (Original post by Yasmin2K8)
    What 4 points would you put for the effectiveness of supply side and fiscal policy to correct deficit on current account?

    - Education and training to improve level of human capital and quality, increase productivity. Eval = Implementation and time lags so no good in short run?

    - Reduce unemployment benefits and lower tax rate to get more people into work and improve labour market flexibility, therefore lower wage levels. Eval = low wages must be matched by high productivity, also inequality may occur due to cut in benefits?

    - Offer tax incentives to firms to invest into research and development and improve quality and design, also subsidies and tax incentives may attract MNC's etc. Eval = mnc's may be footloose or lack of competitiveness due to exchange rate and not quality?

    - Improve competition via less red tape and competition commission and privatisation Eval = May already have fairly low regulation and cannot privatise any more industries?

    Or would you go about it the other way in lowering AD by increasing income taxes and less government spending which would deflate the economy and reduce demand for imports?
    Some good points there. I'd probably go mainly for what you've written, going for ways to increase UK's competitiveness but maybe one point on decreasing disposable income through income tax to decrease demand and imports. Could maybe mention it depends on marginal propensity to import as an evaluative point?
    Also for your last point about privatisation I would probably evaluate by saying that privatisation doesn't always lead to increased efficiency e.g. railtrack. (I've seen that in the mark scheme a few times for privatisation).
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    (Original post by hmjessop)
    The nominal exchange rate is simply the value at which one currency can be exchanged for another. The real exchange rate is the nominal exchange rate multiplied by the ratio of UK to foreign prices.

    It is NOT simply the exchange rate adjusted for inflation.

    Asked my teacher is theres a real difference and she claimed there isnt, since the part where you multiply by the ratio of UK to foreign prices is just a way to withdraw the influence of inflation on the exchange rate.. i.e. nominal exchange rates adjusted for inflation?
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    growth, or SS policies designed to increase labour suppy, may lead to greater income inequalities.
    buy why is this a problem?
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    Also on the previous page, someone disagreed with the claim that Oil price rises would affect AD...

    Yes the effect on AS is more obvious but im pretty sure i was taught to shift AD inwards as well as AS, since there is a fall in discretionary income (oil prices rise which means cost of transport rises through petrol and so do energy bills etc), and thus people are less willing and able to purchase goods
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    (Original post by ayandutta)
    growth, or SS policies designed to increase labour suppy, may lead to greater income inequalities.
    buy why is this a problem?
    because the income distribution becomes more uneven... i dont think i can develop more than that on how its bad :confused:
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    (Original post by newlife)
    Also on the previous page, someone disagreed with the claim that Oil price rises would affect AD...

    Yes the effect on AS is more obvious but im pretty sure i was taught to shift AD inwards as well as AS, since there is a fall in discretionary income (oil prices rise which means cost of transport rises through petrol and so do energy bills etc), and thus people are less willing and able to purchase goods
    That was me and if you reread my post you'd notice that I argued against the whole discretionary income argument because Consumption is determined by disposable income.

    So there would be a contraction, not a shift.

    My post again:

    Higher oil prices, as I'm sure you will agree, is a supply-side shock. Costs of production increase and so prices increase too. Now! Higher prices will not shift AD anywhere but rather will cause a contraction along the curve to the new equilibrium where the price level is higher and real output lower.

    (Original post by newlife)
    Households have less discretionary income, i.e. income after committed payments. Rising oil prices mean energy bills are higher, cost of petrol also soars, and thus AD for goods and services falls since consumers are less willing and able to purchase goods
    The level of consumption is determined by the level of disposable income, not discretionary, surely. As taxes have remained the same, so has your disposable income.
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    good lord

    i'm pretty good with most of this stuff in class and get solid grades, but reading through all this just makes my head spin!!

    :confused:
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    Income inequality could lead to a myriad of factors, including a less flexible labour force due to a sort of 'segregation' between what could be percieved as 'upper-class' and 'lower-class' jobs. That and a rise in social tensions between the two classes, which could negatively affect productivity and living standards.
 
 
 

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