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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 xChelsea)
    General question:
    Would Greece's debt get written off if they left the EU, like they couldn't be forced to pay it?
    No I think they take it with them but if they left the eurozone (but stay in the EU) they are would have their own fiscal and monetary policy so it would be easier to reduce it. E.g set suitable interest rates
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    (Original post by huddb001)
    No I think they take it with them but if they left the eurozone (but stay in the EU) they are would have their own fiscal and monetary policy so it would be easier to reduce it. E.g set suitable interest rates
    Yeah Thanks.
    I knew it was easy for them as they could manage/set their own policies but i wasn't sure about the debt..
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    (Original post by nik2111)
    what about there productivity doesnt that effect unit labour costs ?
    That aswell, yes - but I've not got any hard data to show that labour productivity has fallen under the PIIGS. I think it'd be fair to assume that productivity has generally risen, however just because productivity increases doesn't mean unit labour costs decrease.

    It could be, and in the context of the PIIGS I think is most likely, that wages have risen at a faster rate than productivity, which means that there's an increase in unit labour costs.
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    (Original post by Ben F)
    That aswell, yes - but I've not got any hard data to show that productivity has fallen under the PIIGS. I think it'd be fair to assume that productivity has generally risen, however just because productivity increases doesn't mean unit labour costs decrease.

    It could be, and in the context of the PIIGS I think is most likely, that wages have risen at a faster rate than productivity, which means that there's an increase in unit labour costs.
    so there average wages rose due to the inflation they had and this alongside not much productivity lead to a increase in unit labour costs?
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    this might sound like a stupid question, but as a plus point for a single currency i have that it 'eliminates exchange rate risks and other uncertainties'

    What are these risks and uncertainties?
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    (Original post by rs91)
    this might sound like a stupid question, but as a plus point for a single currency i have that it 'eliminates exchange rate risks and other uncertainties'

    What are these risks and uncertainties?
    Risks & uncertainties = The value of each currency would naturally go up and down on the foreign exchange market, therefore there's uncertainty over what future exchange rates may be..

    Also This would lead to reduction in FDI due to uncertainty detering them.
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    need help asasp

    Comment on the effectiveness of government cutting taxes as a fiscal stimulus to avoide or reduce the effects of a recession

    Comment to the extent to which generous welfare systems are a cause of unemployment

    comment on the difficulties of the ECB setting interest rates that are optimal for any one country inside the MU

    Comment on the extent to which a reduction in trade barriers in manufacturing and agricultural goods can help a developing country
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    (Original post by rs91)
    this might sound like a stupid question, but as a plus point for a single currency i have that it 'eliminates exchange rate risks and other uncertainties'

    What are these risks and uncertainties?
    There's price transparency, countries know who is being more efficient at making let's say laptops as everything is in euro, so if a member country decided to import laptops it wouldn't have to worry about which is cheaper, as if they didn't operate under a single currency and their were ER were volatile one importing from one country might be the cheaper choice one day and might not be anymore the next
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    (Original post by nik2111)
    so there average wages rose due to the inflation they had and this alongside not much productivity lead to a increase in unit labour costs?
    Yup, pretty much - because there was a high rate of inflation, workers demanded more pay so that they weren't worse off in real terms... so their wages went up (and so goes the wage price spiral)

    Because wages went up due to the wage price spiral, and not some collective bargaining agreement (where a trade union may agree a corresponding increase in output with the increase in wage) there is an increase in unit labour costs.
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    (Original post by nini27)
    There's price transparency, countries know who is being more efficient at making let's say laptops as everything is in euro, so if a member country decided to import laptops it wouldn't have to worry about which is cheaper, as if they didn't operate under a single currency and their were ER were volatile one importing from one country might be the cheaper choice one day and might not be anymore the next

    thanks. so is it like when the buyers and sellers know the pricing. Also could this then be linked to lemons theory or would that not apply?
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    (Original post by rs91)
    thanks. so is it like when the buyers and sellers know the pricing. Also could this then be linked to lemons theory or would that not apply?
    sorry i dont know if i made that clear enough, lemons theory in the sense that there is perfect information among member countries in pricing etc so they importers would have a better idea of valuation?
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    (Original post by ajayhp)
    need help asasp

    Comment on the effectiveness of government cutting taxes as a fiscal stimulus to avoide or reduce the effects of a recession

    Comment to the extent to which generous welfare systems are a cause of unemployment

    comment on the difficulties of the ECB setting interest rates that are optimal for any one country inside the MU

    Comment on the extent to which a reduction in trade barriers in manufacturing and agricultural goods can help a developing country
    lol the tutor 2 u set questions for 10 markers

    for effectiveness of g spending cuts i put

    Does reduce recession
    - cuts will lead to more disposable income therefore people will spend and hopefully that will be a multiplier effect which will lead to AD going up

    maybe not
    if consumer confidence is low they wont spend on the economy they could save

    could use a different policy eg goverment spending on training to help boost economic growth

    also if the goverment cuts taxes they will lose income this could cause balance of payments problems and perhaps bad for the economy?
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    Comment to the extent to which generous welfare systems are a cause of unemployment

    for that one i put

    yes- incentives to work go down so unemployment could be a cause of that

    no - its infact spains competiveness which is why they are in unemployment

    no- market failure so people are getting qualifications but there are no jobs for them

    possible due to a economy not having flexable labour markets to account for changes in demand

    perhaps a negative multipler effect such as what spain had would lead to unemployment not goverments.
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    (Original post by ajayhp)
    need help asasp

    Comment on the effectiveness of government cutting taxes as a fiscal stimulus to avoide or reduce the effects of a recession

    Comment to the extent to which generous welfare systems are a cause of unemployment

    comment on the difficulties of the ECB setting interest rates that are optimal for any one country inside the MU

    Comment on the extent to which a reduction in trade barriers in manufacturing and agricultural goods can help a developing country

    Lower trade barriers in manufacturing and agricultural goods = lower price for foreign countries to import their goods = increase of the demand for their currency = increase in exports = higher AD = lower unemployment rate = increased gov revenue which might be spent on education and training which will enable the future workforce to have the appropriate skills in order for the economy to still be developing ... multiplier effect

    However
    - May not have enough spare capacity to benefit from lower trade barriers, so investment is needed, but investors may be reluctant to invest on a developing country for agriculture when they could invest on something more profitable
    - Usually developing economies have huge amount of debts, so the developing economy will not benefit from the higher gov revenue as a majority of it will be used to pay back the debts
    - at the same time developed countries will export technological products which are worth much more than agricultural, therefore the terms of trade increases, so the developing economies won't benefit from trade as much as the developed ones

    Conclusion
    Trade liberalistaion on its own is not a guarantee of human development as other factors must be taken in account such as literacy rate

    Hope this helps
    If anyone has other points to add to this please do
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    (Original post by rs91)
    thanks. so is it like when the buyers and sellers know the pricing. Also could this then be linked to lemons theory or would that not apply?

    (Original post by rs91)
    sorry i dont know if i made that clear enough, lemons theory in the sense that there is perfect information among member countries in pricing etc so they importers would have a better idea of valuation?
    What's the lemons theory?
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    (Original post by nik2111)
    Comment to the extent to which generous welfare systems are a cause of unemployment

    for that one i put

    yes- incentives to work go down so unemployment could be a cause of that

    no - its infact spains competiveness which is why they are in unemployment

    no- market failure so people are getting qualifications but there are no jobs for them

    possible due to a economy not having flexable labour markets to account for changes in demand

    perhaps a negative multipler effect such as what spain had would lead to unemployment not goverments.
    For your last point is that they had low real insterest rates - The banking crisis - Stopped lending - Biggest industry in spain = construction&tourism - This left huge numbers unemployed as around 1 in 10 are in their construction industry as it's a labour intensive industry and millions are directly/indirectly affected by this industry which accounts for around 15% of Spanish GDP?
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    (Original post by nini27)
    Lower trade barriers in manufacturing and agricultural goods = lower price for foreign countries to import their goods = increase of the demand for their currency = increase in exports = higher AD = lower unemployment rate = increased gov revenue which might be spent on education and training which will enable the future workforce to have the appropriate skills in order for the economy to still be developing ... multiplier effect

    However
    - May not have enough spare capacity to benefit from lower trade barriers, so investment is needed, but investors may be reluctant to invest on a developing country for agriculture when they could invest on something more profitable
    - Usually developing economies have huge amount of debts, so the developing economy will not benefit from the higher gov revenue as a majority of it will be used to pay back the debts
    - at the same time developed countries will export technological products which are worth much more than agricultural, therefore the terms of trade increases, so the developing economies won't benefit from trade as much as the developed ones

    Conclusion
    Trade liberalistaion on its own is not a guarantee of human development as other factors must be taken in account such as literacy rate

    Hope this helps
    If anyone has other points to add to this please do
    does a over reliance on developing countries on argiculture goods production bad, as this will mean they will never have better health care or education as income from agriculture is not high?
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    Do a lot of imports in to an economy affect local industries ?
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    (Original post by nik2111)
    does a over reliance on developing countries on argiculture goods production bad, as this will mean they will never have better health care or education as income from agriculture is not high?
    I guess it depends whether the agriculture-led growth is well managed, if so, the developing country will start to industrialise as it is where the 'real growth' is made. This will lead to a faster growth which will attract FDIs, will add money into the circular flow of income, reduce the unemployment rate and in the long term, will increase the potential growth of the developing economy. so there is a HUGE multiplier effect and a HUGE accelerator effect.

    If not well managed, the developing country will be over reliant on the agricultural-led growth, which like you said will result to poor health care or education. Plus agricultural led growth fluctuates: usually seasonal, weather, global warming
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    (Original post by xChelsea)
    General question:
    Would Greece's debt get written off if they left the EU, like they couldn't be forced to pay it?
    No
    In fact, Greece would have to devalue their currency by a lot to gain competitiveness. A devaluation of their currency would actually increase the size of their debt.
 
 
 
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