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

1. (Original post by Ohmydog)
What I'm unsure on is what happens when the value of the currency rises relative to other countries. I read about it in books, but my mind just goes fuzzy. Can someone please explain its impacts on other variables such as inflation, investment etc...
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.
Could anyone please explain to me what the actual difference between application and analysis is? I'm feeling good about my knowledge and evaluation, but up until now, I've been thinking these two were the same thing @[email protected]

Also, how many evaluation points should be included in the essay? I'm guessing around three or four, but it's better to be safe than sorry I guess. Much appreciated!
For the final 30 marker essay you need a total of 12 marks of evaluation!
In the 16/12 mark questions you only need 4 marks of evaluation

Not 100% sure, to be honest I never worried to much whether I was analysing or applying, but heres what I think:

Knowledge: definitions, diagrams etc (facts you know about the question)
Application: Is basically using data references (each reference is 2 marks) and trying to use your knowledge on the data (This is happening)
Analysis: Is explaining why certain things happen ( This is happening because...)

Evaluation: Just saying whether everything you have said previously is valid or not and why things may not happen. (However..)
3. (Original post by tigerz)
YAY!

Thanks for this!

Oh yeah if anyone wants a doc of all the past 30 markers
Another A+F man in the house I see

Btw guys does anyone know if we need to bother reading the exchange rate policy chapter in the large textbook, as well as the economics of happiness and the keynesian composition function, the life cycle hypothesis and the permanent income hypothesis.

Most of my learning is coming from the revision guide with large chapters being consolidated from the large textbook. Gonna have to wing this exam lol
4. Can someone explain what exactly is "hot money" and "downward sticky wages" thanks!

goodluck to everyone tomorrow.
5. (Original post by tigerz)
yeah same! s1 edexcel morning and this in the afternoon.

I kind of understand it but don't know how to explain 'crowding out effect' and quantitative easing properly
Same with hot money!

Also when you have to define CPI and explain how inflation is calculated I find myself writing an essay and the mark schemes just says:
weighting (1), basket of goods (1) etc !
Crowding out effect: is when an increase in government expenditure leads to a decrease in private sector activity either directly or indirectly. For example in the government builds a public library in the vicinity, household purchases of books at the local bookstore would decline or building a new hospital would result in less people consuming private healthcare.

Indirect effect is that if government increase consumption and/or decrease taxes it will increase its own deficit. Then the government needs to borrow in order to pay for the overspending. Added demand for credit drives up the the price of credit in the form of interest rates. As interest rates rise consumption and investment spending will fall.

Hot money is basically when capital markets are looking for the best interest rates in order to get a higher rate of return. Therefore an increase in interest rates will lead to more 'hot money' flowing into the country which would lead to an appreciation of the pound which is why interest rates cause exchange rates to rise.

CPI:Two surveys are done: Expenditure and Food Survey (what people buy) from a sample of 7000 households and a Price Survey on the basket of 650 most commonly used goods.The proportion of income spent on each item is used to ascertain weighting. For example if 10% in spent on food, then 10% of the weighting is assigned to food. The price changes are multiplied by the weights to give a price index. i.e if food goes up by 50p it's just 50 x 0.1 (since it's 10%). You don't need to write it in this much detail in the exam , but it's just so you understand.
6. (Original post by Boy_wonder_95)
Crowding out effect: is when an increase in government expenditure leads to a decrease in private sector activity either directly or indirectly. For example in the government builds a public library in the vicinity, household purchases of books at the local bookstore would decline or building a new hospital would result in less people consuming private healthcare.

Indirect effect is that if government increase consumption and/or decrease taxes it will increase its own deficit. Then the government needs to borrow in order to pay for the overspending. Added demand for credit drives up the the price of credit in the form of interest rates. As interest rates rise consumption and investment spending will fall.

Hot money is basically when capital markets are looking for the best interest rates in order to get a higher rate of return. Therefore an increase in interest rates will lead to more 'hot money' flowing into the country which would lead to an appreciation of the pound which is why interest rates cause exchange rates to rise.

CPI:Two surveys are done: Expenditure and Food Survey (what people buy) from a sample of 7000 households and a Price Survey on the basket of 650 most commonly used goods.The proportion of income spent on each item is used to ascertain weighting. For example if 10% in spent on food, then 10% of the weighting is assigned to food. The price changes are multiplied by the weights to give a price index. i.e if food goes up by 50p it's just 50 x 0.1 (since it's 10%). You don't need to write it in this much detail in the exam , but it's just so you understand.
Ahh thanks Can I use hot money as an evaluation for controlling inflation?
When interest rates rise, hot money will flow in this is bad for the current account of balance of payments as UK goods will be more expensive for foreigners etc?
7. (Original post by tigerz)
Ahh thanks Can I use hot money as an evaluation for controlling inflation?
When interest rates rise, hot money will flow in this is bad for the current account of balance of payments as UK goods will be more expensive for foreigners etc?
Yes or it could be part of a 30 marker on conflicts between objectives and you use hot money to explain why higher interest rates will cause higher exchange rates. Yes increasing the current account deficit.

Then as evaluation you can talk about time period, in the short run PED for imports and exports are relatively inelastic since contracts have been agreed upon in international trade.
8. What do you guys think is likely to come up this year? according to recent data and stuff in the papers and the news?
9. Does anyone have any good evaluative points for competition policies, i.e. prioritization etc..?
10. (Original post by Boy_wonder_95)
Does anyone have any good evaluative points for competition policies, i.e. prioritization etc..?
Ahh yeah defo double evaluation woop
Are you talking about deregulation etc?
11. Two questions:
Is there a significant difference between GDP and GNP?

Also what are the 3 components of HDI? I'm resitting and i think the components have updated since life expectancy, adult literacy rates and GDP per capita at PPP US\$
12. (Original post by Turbintajj)
Two questions:
Is there a significant difference between GDP and GNP?

Also what are the 3 components of HDI? I'm resitting and i think the components have updated since life expectancy, adult literacy rates and GDP per capita at PPP US\$
http://www.diffen.com/difference/GDP_vs_GNP

Also the HDI components are the same
13. (Original post by tigerz)
Ahh yeah defo double evaluation woop
Are you talking about deregulation etc?
Yh either deregulation or privatization.
All I've got in my notes is 1980s Margaret Thatcher, didn't lead to improvements in railways or water supply blah blah blah, and I would something a bit more... evaluative (couldn't think of a better word )
14. guys can someone explain cost push and demand pull inflation?

How can they occur and what effect on economy?

Also what's better an appreciation of a currency/depreciation
15. (Original post by tigerz)
http://www.diffen.com/difference/GDP_vs_GNP

Also the HDI components are the same
Thank you!

the components are the same but what about the way they are measured?
life expectancy - average no. of yrs before death
adult literacy- mean no. of years spent in school/expected no. of years expected in school
is that correct?
16. (Original post by ineedtorevise127)
guys can someone explain cost push and demand pull inflation?

How can they occur and what effect on economy?

Also what's better an appreciation of a currency/depreciation
Cost push inflation means that theres rising inflation due to the AS curve being shifted to the left, whilst AD remains untouched. For example; Higher oil prices make a lot of companies have to up the prices of their products. Generally anything which makes the firm to pay more in terms of maitenence will cause this. Higher wages are the most common for multi choice i seen.

Demand pull is when the AD curve shifts to the right, whilst AS remains constant. Usually you will have to show the AD curve rising on the inelastic part of the keynes AS curve. Any + changes in the AD componenets will cause this. E.g. Higher Govt expenditure.
It is better to have demand pull because at least the economy experiences greater output to an extent, where as cost push leads to higher prices (inflation) and lower output.

Appreciation = Exchange rate goes up vice versa. How i remember it is if the Exchange rate goes up, Import goes up and Exports go down. - The E's never go up together !
Basically a low exchange rate is preferred as you can export more thus more money in the circular flow, though this depends on other factors like inflation.

Hope i helped!
17. thanks are there anyone ones that are not so frequent
18. anyone doing unit 2 aqa? what you reckon will come up?
19. (Original post by NabRoh)
22 hours before the exam and you're recommending we do all the past papers that exist for it?

(We did all of them weeks ago)
I meant just go through them again
20. (Original post by Jkizer)
Cost push inflation means that theres rising inflation due to the AS curve being shifted to the left, whilst AD remains untouched. For example; Higher oil prices make a lot of companies have to up the prices of their products. Generally anything which makes the firm to pay more in terms of maitenence will cause this. Higher wages are the most common for multi choice i seen.

Demand pull is when the AD curve shifts to the right, whilst AS remains constant. Usually you will have to show the AD curve rising on the inelastic part of the keynes AS curve. Any + changes in the AD componenets will cause this. E.g. Higher Govt expenditure.
It is better to have demand pull because at least the economy experiences greater output to an extent, where as cost push leads to higher prices (inflation) and lower output.

Appreciation = Exchange rate goes up vice versa. How i remember it is if the Exchange rate goes up, Import goes up and Exports go down. - The E's never go up together !
Basically a low exchange rate is preferred as you can export more thus more money in the circular flow, though this depends on other factors like inflation.

Hope i helped!
hi could u give any likely predictions

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