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Economics Unit 2 Edexcel - Managing the UK economy Tuesday 19th May 2015 (PM)

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Original post by .JC.
- Inflation is measured in the UK by changes in CPI.

- The CPI is given as an index number. This means that it is a percentage.

- It is usually shown on a year to year basis, so you need to calculate the change over original x 100.

- The Livings Costs and Food Survey collects information from a sample of nearly 7000 households in the UK, using self-reported diaries of all purchases (hence why it could be incorrect).

- Weights are assigned to each item that is bought by the average household.

- The weights show the proportion of income spent on each item.

- A price survey is undertaken by civil servants who collect data once per month about changes in the price of the 650 most commonly used goods and services in a variety of retail outlets.

- CPI DOES NOT include housing costs, the biggest thing which consumers spend their income on.

Evaluation points:

- Different countries use different measures (CPI and RPI) so comparing can be inaccurate.

- It doesn't include housing costs so doesn't give a true reflection of the inflation in the economy.

- The consumers surveyed could lie, making results inaccurate.

- Items are constantly updating so the 650 may not be representative.

- Products are different prices in different outlets, e.g Waitrose compared to Farmfoods.


thanks, so helpful :smile:
I know it doesn't make a difference but will people be drawing the classical view or the Keynesian view for LRAS
Reply 322
Original post by Lpfuller
do we need to know about exchange rate policy
also can someone give me a few evaluation points


We may need to talk about exchange rates and how they affect AD.

This has been mentioned previously here but remember 'SPICED':

Strong Pound Imports Cheaper Exports Dearer

So if the value increases, then AD will decrease (more goods imported). If the value falls, then AD will increase (more goods exported).

You can evaluate it by talking about the points I made last page, such as other factors (consumption) being more important, or magnitude (i.e how much the exchange rate changes).
Original post by blindambition
They have asked for candidates to calculate index numbers for the effects of inflation on prices once before. Be sure that you can do that (it basically involves working out the percentage increase with a base index number of 100).


Oh is that it? :redface:
Original post by AJC1997
None as far as I'm aware. I mean you might be asked to work out the percentage increase/decrease. I don't think they ever ask you to calculate elasticity in Macro.



My college just sent out a message to me to remember to bring a calculator. I don't think it's to do with elasticity. Index numbers and multiplier is involved I think. So we would need to calculate them perhaps.
Reply 325
Original post by Lpfuller
I know it doesn't make a difference but will people be drawing the classical view or the Keynesian view for LRAS


I draw them like this:

2000px-Aggregate_supply.svg.png

That way you can evaluate where the equilibrium point is. For example, if it lies on the Keynesian part, a shift in AD will not affect the average price level (much) but will affect GDP. Similarly, if it's on the classical part, a shift in AD will not affect GDP (much), but will affect the average price level.

This is especially useful if you're specifically asked, or referring to inflation or economic growth.
Reply 326
Original post by Hai_Ann
My college just sent out a message to me to remember to bring a calculator. I don't think it's to do with elasticity. Index numbers and multiplier is involved I think. So we would need to calculate them perhaps.


They won't have seen the papers, so it's irrelevant. The paper states you can use a calculator, which means you should bring one.
Original post by Lpfuller
I know it doesn't make a difference but will people be drawing the classical view or the Keynesian view for LRAS


Keynesian. I've just always done it so it's kind of a habit and makes a change to the Micro AS/AD curves. Also I find it's better because it's easy to show the level of spare capacity in the economy and also inflation
Original post by .JC.
I draw them like this:

2000px-Aggregate_supply.svg.png

That way you can evaluate where the equilibrium point is. For example, if it lies on the Keynesian part, a shift in AD will not affect the average price level (much) but will affect GDP. Similarly, if it's on the classical part, a shift in AD will not affect GDP (much), but will affect the average price level.

This is especially useful if you're specifically asked, or referring to inflation or economic growth.


exactly the same as me
Reply 329
Original post by Lpfuller
can someone explain how CPI is measured, thanks!

Two surveys are used.
They are expenditure and food survey and the prices survey
in the expenditure and food survey, information is collected from around 7,000 households using self reported diaries of all their purchases including food eaten out. This is then used to ascertain weighting
In the price survey, changes in the prices of over 650 most commonly used goods and services are undertaken by civil servants in a variety of retail outlets because goods can be bought in low-cost and high-cost shops. A selection of prices is gathered for each item. The price changes are multiplied by the weights to give a price index. inflation can be measured from this by calculating the percentage change in this index over consecutive years
However the problem with this is that it doesn't include housing cost such as mortgage repayments which often have a big impact on household spending and is seen as a cost of living for most households.

hope this helps :smile:
How to calculate an index number?
Just started revising at 9pm, ffs.
Looks like pajholden is going to become my best friend for the next 5 hours.
Can anybody recommend key areas of Unit 2 to get mastered in preparation for the longer questions?
Reply 332
Original post by Night before
Just started revising at 9pm, ffs.
Looks like pajholden is going to become my best friend for the next 5 hours.
Can anybody recommend key areas of Unit 2 to get mastered in preparation for the longer questions?


Macroeconomics objectives and government policies. Learn the evaluation techniques from one of my previous posts and look at the mark schemes to learn what the examiner wants you to put.

Good luck!
Original post by Mowtoe
Two surveys are used.
They are expenditure and food survey and the prices survey
in the expenditure and food survey, information is collected from around 7,000 households using self reported diaries of all their purchases including food eaten out. This is then used to ascertain weighting
In the price survey, changes in the prices of over 650 most commonly used goods and services are undertaken by civil servants in a variety of retail outlets because goods can be bought in low-cost and high-cost shops. A selection of prices is gathered for each item. The price changes are multiplied by the weights to give a price index. inflation can be measured from this by calculating the percentage change in this index over consecutive years
However the problem with this is that it doesn't include housing cost such as mortgage repayments which often have a big impact on household spending and is seen as a cost of living for most households.

hope this helps :smile:


definitely, thanks !
Original post by Night before
Just started revising at 9pm, ffs.
Looks like pajholden is going to become my best friend for the next 5 hours.
Can anybody recommend key areas of Unit 2 to get mastered in preparation for the longer questions?


LOL Love the username in relation to this haha

Learn: Supply Side, Fiscal and Monetary Policies as these are common topics for 30 markers. Also macroeconomics objectives, practice AD/AS Diagrams, Inflation measures and Unemployment measures.
Reply 335
Can someone explain and evaluate deregulation for me please
Reply 336
Original post by blank101
How to calculate an index number?


A question will give you two numbers, one will be the GDP of a certain year, lets call that £10,000,000,000. It will also give you a figure for how much of that was inflation, lets say £150,000,000.

You do the latter number over the former number, so 150,000,000/10,000,000,000, which would give you 0.015 in this case. You then multiply by 100, so you would get 1.5%. This is the level of inflation for the given year.

tl;dr

(Small number/Big number) x 100
Quick reply is much appreciated, thank you both and good luck in your exams.
Hopefully you are better prepared than myself. :biggrin:


Original post by badaman
LOL Love the username in relation to this haha

Learn: Supply Side, Fiscal and Monetary Policies as these are common topics for 30 markers. Also macroeconomics objectives, practice AD/AS Diagrams, Inflation measures and Unemployment measures.


Original post by .JC.
Macroeconomics objectives and government policies. Learn the evaluation techniques from one of my previous posts and look at the mark schemes to learn what the examiner wants you to put.

Good luck!
Original post by falloutboyyy
Lowering IR means that money flows out of country as it is less attractive to hot money flows because it's not good saving rates.
This means exchange rate decreases so imports become dearer and exports cheaper so more competitive so it should in reality improve the current account balance of payments.

HOW EVER our country has a high marginal propensity to import so could end up worsening it.
Also if the quality of our exports aren't good enough then it won't make a difference

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thnx xxx
Anyone want to give me some tips on how to make sophisticated brief conclusions for the evaluative questions? Particularly the 30 markers as I am usually constrained with time (didn't finish Unit 1 but wrote well enough to steal an A) and tend to want to avoid a conclusion as they aren't marked but are good to have for QWC.

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