AQA ECN 5/6 Official Revision Thread (27/06)

Thugzmansions answer is in relation to the balance of payments and not the govermment budget - do not follow his advice.

I would tackle this question like so;

1) Defiition of a balanced budget (revenue = expenditure)

2) If we mean the budget should be balanced every single year (which is obviously stupid due to economic cycles) or it should be balanced over the economic cycle (which allows for the the flucations)

3) Case for a balanced budget
i) High national debt means higher tax burden for fiuture generations (thus, lower growth etc.)
ii) Stops crowding out (too much government spending limiting private sector)
iii) The automatic stabaliser affect of fiscal policy should mean over the economic cycle the budget is balanced always
iv) Structual vs Cyclical deficits. If you have a permenant deficit it means there is a structual deficieny within the economy requires more spending etc - kinda bad
v) If you have a large deficit, you have more people competing for a limited pool of resoucrs which may push up interest rates - limiting growth.

4) Case against
i) In times of recession its just impossible to balance and also necessay to be unbalanced to push economy forwards
ii) Golden rule within the UK and why spending for investment is actual benficial even if we run a budget deficit (LRA shifts out)
iii) Govermment spending to lure private investors (Public-Private finance intiaitves)
iv) May be necessary for spending on merit goods)
v) UK is credit worthy, and we can easily borrow, as long as our debt to GDP ratio remains reasonable.

Erm...thats off top of my head, i'm sure theres quite a lot of other stuff also.

I'll check the mark scheme, but SURELY the amount of gov. spending encoporates with the BoP!?

I'll check the mark scheme, but SURELY the amount of gov. spending encoporates with the BoP!?

Anyone got any notes on for and against regulation of marketse.g. OFgem/oftel/ofwat..etc?

Hmm i suppose alot of it is relating back to monopoly =\

There is no need to illustrate it at all, only to state what you mean by being more productively efficient.

You are wrong to think that LRAS moves outward due to an increase in productive efficieny. The LRAS supply measures the maximum potential output if we were all productively efficient and utlilising resources to our maximum.

The PPF diagram would be a movement towards operating on our PPF, not an outward shift of it.

Restrictive practices restricts competition right. And it does as price discrimination charges higher price than a normal market. It is neither allocatively nor productively efficient. E.g. an extreme form of 1st degree p.d. could lead to no consumer surplus.

I think LRAS which utilises the natural rate of employment is different from full capacity (YFE) where everyone is in employment (ie. maximum potential as you say).

The LRAS measures the maximum potential output in the long run, not just if we were all productively efficient. What does productive efficiency mean, every firm is at the bottom of their ATC curves?

Do you mean something different by productive efficiency and productivity? Because I have been taught that by increasing productivity you can certainly increase the LRAS of an economy.