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Question spotting for F585 Economics The Global Economy OCR A level June 2011 watch

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    (Original post by viksta1000)
    ok well first we start off with what trade liberisation actually is

    so trade liberilsation is basically the promotion of international trade by the reduction of barriers to entry (tariffs and non-tariff barriers)
    Liberlisation can occur when economies within the same geographical area agree to eliminate tariffs on trade within the regional trade bloc

    There are many reasons why they may wish to do this:
    • tariff free trade will reduce trade costs allowing countries to import cheaper goods as well as import cheaper raw materials for firms
    • this means that firms can reduce costs by importing cheaper materials thus reducing cost push inflation
    • firms will have access to larger markets allowing them to benefit from economies of scale
    • trade liberlisation will allow more competition into the domestic economy forcing domestic suppliers to improve efficiency in order to compete on a international level
    • economies can benefit from greater innovation and investment as members share knowledge and technology
    • monopoly power will be reduced as competition increases and hence consumers benefit from greater 'choice' and lower prices
    • economies can see increases in FDI as multi-national corporations from outside the area relocate to take advantage of tariff free trading


    However, trade integration can have many consequences
    • Trade diversion means that economies formally trading from outside the free trade area will have to transfer trade from cheaper countries to less efficient economies inside the union
    • domestic economies may suffer due to being unable to compete with compeition - can lead to increased unemployment
    • some economies will benefit more than others
    • developing countries reliant on exports who are outside the area will be greatly affected
    • imports from outside the free trade area will be more expensive as the economy has to agree to a common tariff for non union members


    so to conclude, trade liberalisation can have many benefits, but can also induce costs on economies within the union as well as outside the union

    Thank you!!
    That helped so much!!
    How have you been revising, from the tutor 2 u?
    or the text books?
    I'm really scared for this exam
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    (Original post by mqt)
    i have a question! ...could you explain to me a reserve currency please
    A currency widely traded and held in the foreign reserves by the central bank to pay of debts and imports.
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    hey guys can some one check this 10 mark essay the question is wether a country should have fixed or floating exchange rates

    fixed
    good thing - less uncertantiy for business's they know prices of there exports and imports in the future
    bag thing- need to have curreny reserves there could be a opp cost of useing that money elsewere
    floating
    good thing- exchange rates auto adjust to counter balance of payments problems
    bad thing- could be a degree of uncertantiy
    evaulation - semi fixed exchange rates are best
    evaulation- chosing which is best depends on the situation of the country cant genralise
    say which is best

    i think that would take up the full amount of space, and if the question asks specfically about investment for example i can change my evaulation points

    do people rekon this is good or bad structure?

    good luck with the exam on thrusday
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    Does anyone think a question on tariffs is going to come up ?
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    (Original post by koba-girl)
    Thank you!!
    That helped so much!!
    How have you been revising, from the tutor 2 u?
    or the text books?
    I'm really scared for this exam
    I'm just reading the case studies, picking out the keywords are revising around them

    Don't worry, if you can bull**** about economics, then you'll be fine
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    Got a q
    Comment on the extent to which "positive impact of national stimulus packages is at best temporary

    I understand that weakening fiscal multiplier has something to do with it

    and

    Comment to the extent that Spain's dependence on the housing industry has led to a delay recovery

    I understand that 15% of unemployment is from the housing industry and then talk about AD and AS analysis on a fall in consumption and in the LR a fall in the labour force due to negative multiplier effects and negative accelerator effects. These directly affect the economic cycle and of course the gov finances on unemployment benefits which are very generous and contribute to the unemployment trap. The main cause is due to a brain drain which has been caused by highly skilled workers to leave, leaving a workforce who isn't productive and lower productivity means high unit labour costs which then get passed on the consumer, at which the consumer substitutes. This equals more job losses and less consumption and waste of resources. The dependence on the construction industry depends on the size of unemployment. Consumer and business confidence?


    what else does it depend on?
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    (Original post by ajayhp)
    Got a q
    Comment on the extent to which "positive impact of national stimulus packages is at best temporary

    I understand that weakening fiscal multiplier has something to do with it

    and

    Comment to the extent that Spain's dependence on the housing industry has led to a delay recovery

    I understand that 15% of unemployment is from the housing industry and then talk about AD and AS analysis on a fall in consumption and in the LR a fall in the labour force due to negative multiplier effects and negative accelerator effects. These directly affect the economic cycle and of course the gov finances on unemployment benefits. The main cause is due to a brain drain which has been caused by highly skilled workers to leave, leaving a workforce who isn't productive and lower productivity means high unit labour costs which then get passed on the consumer, at which the consumer substitutes. This equals more job losses and less consumption and waste of resources. The dependence on the construction industry depends on the size of unemployment.


    what else does it depend on?
    depends what kind of package wether its cut in taxes or increase in goverment spending if its a cut in taxes then perhaps people will spend there disposable income abroad this may not be the intention of the package in the first place.
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    (Original post by ajayhp)
    Got a q
    Comment on the extent to which "positive impact of national stimulus packages is at best temporary

    I understand that weakening fiscal multiplier has something to do with it
    ok well fiscal stimulus packages are aimed to improve AD through fiscal policy (tax, government spending and investment). What this stimulus tries to do is increase AD in an attempt to increase GDP growth

    So sure in the short term, cut tax = more disposable income = more spending = increased AD. or increase government spending = increased AD. or increased investment (usually bail out packs) = increased AD

    but how can the economy sustain this growth? and what effect will the stimulus itself actually have?

    if the multiplier is small, the impact of the stimulus itself will be minimal. How can the multiplier be small? with a high marginal propensity to withdraw, usually through imports and savings. So in order to increase the effetiveness of the stimulus, the government should look to increase the multiplier effect of the economy so the impact is more longer term...cut interest rates, get people spending rather than saving their income. Perhaps impose some tarrifs on imports to prevent leakages on imports. Depending on how the exchange rate mechanism of the economy is, a cut in interest will reduce the exchange rate, so imports will become more expensive anyway and exports will become cheaper

    But what about the structure of the economy itself? is employment high? it must be if a stimulus is required...that means a large proportion of the stimulus would be spent in order to pay benefits...in the long term this is unsustainable, it would be better to try and create jobs and generate income from tax

    furthermore, what about the current operation of the economy? is it near full capacity? if so, the stimulus would increase AD and the impact would be purely inflationary....this would increase output costs making the economy less competitive and hence exports would reduce. So perhaps it would be better to implement supply side policies for long term growth

    What about the governments current fiscal position itself? if the government is already in debt, the stimulus will simply 'hide' the governments fiscal issues and not necessarily rectify the problem

    on the other hand a fiscal stimulus can be used in the short term to improve consumer and business confidence which is more sustainable in the long term. As firms become confident, they want to increase output and take on more workers and invest, this increase AS and AD. Consumers become more confident and spend more, this increases AD, more people are in work, this means the government spends less on benefits and generates more tax revenue, so AD increases and the governments fiscal position increases.

    so to conclude, the stimulus will generate a short term boom to the economy. whether or not the impact is long term depends on how the fiscal is used

    hope this helps
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    cut tax = more disposable income = more spending = increased AD

    evaluation point- this doesnt always happen in this way ?
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    (Original post by nik2111)
    cut tax = more disposable income = more spending = increased AD

    evaluation point- this doesnt always happen in this way ?
    aye, but you're going to have to write about why it doesn't happen
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    (Original post by viksta1000)
    aye, but you're going to have to write about why it doesn't happen
    is it because the money the person gets back from the goverment may not be spent on consumer goods it could be spend on a holiday or even saved if the consumer confidence is low also can this be a 20 mark question as the topic is in extract 4?
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    does anyone know how to asnwer ' comment on wether the EU countries have made the right choice to break there fiscal rules during this recession?
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    (Original post by nik2111)
    is it because the money the person gets back from the goverment may not be spent on consumer goods it could be spend on a holiday or even saved if the consumer confidence is low also can this be a 20 mark question as the topic is in extract 4?
    noooot reeeally

    the best example I can think of is that interest rates are high...so sure cut tax and increase disposable income, but you wanna know what im going to do with that extra disposable income...save it! plus if interest rates are high, loans and mortgages will be more expensive, so firms and consumers will find it more expensive to borrow and hence consumer spending will reduce

    also, if the domestic economy is lacking productivity, then it wont be competitive and will perhaps be more expensive than foreign economies, so people will use their extra disposable income on cheaper goods from abroad rather than in the domestic economy, not only will this not affect AD. but increase imports will reduce AD which is the opposite of what we wanted

    yes, consumer confidence and business confidence plays big roles.....but their main part is in sustaining the economic growth generated from the stimulus packs

    yeah it more tha likely will be along these lines, although I think that it will be more liked to trade liberalisation rather than stimulus packs.....I do see stimulus packs in earlier 6/10 markers though as there's lots to do with the PIIGS in extracts 1-3
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    i rekon its important then to be reasonable good at extracts 1-3 and perhaps really focus on 4 as to gain top marks in the 10 questions evaulation will be based on the specifics of the question so i dont think it can be revised before the exam, however do you rekon its important to focus on extract 4 and learn a lot as this could be in any shape or form 20 mark question and you cant sort of make up things for a 20 marks question.
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    (Original post by nik2111)
    i rekon its important then to be reasonable good at extracts 1-3 and perhaps really focus on 4 as to gain top marks in the 10 questions evaulation will be based on the specifics of the question so i dont think it can be revised before the exam, however do you rekon its important to focus on extract 4 and learn a lot as this could be in any shape or form 20 mark question and you cant sort of make up things for a 20 marks question.
    tbh, I think the knowledge that applies to extract 1-3 is similar to that of 4

    don't focus too much on trying to learn the ins and outs of the extracts...try to apply your economic knowledge to the extracts themselves

    so in 1-3 mostly about economic cycles...so think what causes economic cycles? what are the impacts of economics cycles? what can affect the economic cycles?.....1-3 also covers the Eurozone which is a monetary union...so think benefits/cons? impacts?

    then extract 4 is all the knowledge above but in a global context
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    also just to add that the Spain's generous welfare system and the rate of unemployment depends on.

    1. the replacement ratio,
    2. marginal effective tax rate
    3. work incentives.
    4. The extract also does not state whether the benefits are paid every month of teh 6 months i think and it will contribute to the unemployment trap

    Yes 15% of unemployment is caused by the dependence on the housing industry which causes negative multiplier and negative accelerator effects. Due to a lack of consumption and investment = reduce AD.

    However the unemployment benefits can be spent into the economy to stimulate aggregate demand thereby stimulating investment to take place. This spending will increase demand for goods which should create jobs and therby reducing unemployment.
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    so think things extract 1
    > fixed/floating exchange rates
    > convergence and two speed euro
    > variance in GDP across the EU area
    extract 2
    > talk about ECB in setting rates across union
    > competiviness
    extract 3
    >unemployment is it a fiscal problem/goverments giving too many perks or a lack of competiviness and market faliure
    extract 4
    stimulus packages effectiveness of them
    and trade lib

    if my grade resembles my spelling i will flop
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    (Original post by ajayhp)
    also just to add that the Spain's generous welfare system and the rate of unemployment depends on.

    1. the replacement ratio,
    2. marginal effective tax rate
    3. work incentives.
    4. The extract also does not state whether the benefits are paid every month of teh 6 months i think and it will contribute to the unemployment trap

    Yes 15% of unemployment is caused by the dependence on the housing industry which causes negative multiplier and negative accelerator effects. Due to a lack of consumption and investment = reduce AD.

    However the unemployment benefits can be spent into the economy to stimulate aggregate demand thereby stimulating investment to take place. This spending will increase demand for goods which should create jobs and therby reducing unemployment.
    do you know any reasons that perhaps spains economic recovery being delayed is not due to construction or housing reliance?
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    (Original post by nik2111)
    do you know any reasons that perhaps spains economic recovery being delayed is not due to construction or housing reliance?
    yes - they have very high welfare payments which along with the SGP stops them being able to use fiscal policy to get out of the recession.
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    (Original post by nik2111)
    do you know any reasons that perhaps spains economic recovery being delayed is not due to construction or housing reliance?
    the fact that their unemployment rates are debatably the worst in europe springs to mind
    • but the fact that their largest industry is 'non-tradeable' is the main driving force behind the slow economic recovery
    • high Euro value makes properties more expensive for people outside the Eurozone, demand for property fell, property prices plumeted
    • interest rates at the time were increased by the ECB, borrowing become more expensive, consumers could no longer afford to take out mortgages to buy houses
    • the fact that their european neighbours are also in financial meltdown doesn't help as there's no market for exports
    • tourism is a big market in spain...but no tourists with the crisis as people not willing to 'waste' disposable income on holidays with low consumer confidence
 
 
 
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