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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)
    - Recession caused by financial crisis in 2007/8 (banking crisis), banks stopped lending.
    - Background to spain, low real interest rates (low interest rates, high inflation) fuelled economy growth, huge dependency on the construction/housing industry, contributes to around 15% of their GDP. 1 in 10 in this industry.
    - Effects of recession on Spain: As banks stopped lending = collapse of industry, Huge unemployment = reduction in AD as less consumer spending etc.

    In the short run:
    To combat this the gov't need to use fiscal policy(fiscal stimulus) of increasing consumer expenditure with the aim of inflating AD to stimulate growth and increase economic activity as the banks aren't lending etc

    To finance this increased expenditure, the gov't may run up debts.

    However in the long run:
    - This isn't suitable as it's very unsustainable.
    - Need supply side policies.

    Anyone else please add, unsure how right this is..
    yes also its the only choice they have as they are in a EU montetary union fiscal aspects is all they can change so you cant really blame them for doing so as the monetary policy wasnt helping much with there interest rates.
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    (Original post by deuces)
    the coutries which use the euro can't use quantatative easing can they? as it would affect the exchange rate

    just wanted to make sure, too many things going aroung in my head at the moment
    The ECB are in control of the money supply not the individual countries.
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    i think this is the most effective way to revise sort of talk about issues cos the theory we know we just gotta try and apply it through different scenarious in the extract and think of all the different perspectives .

    anyone have any other ideas for revisen from now till the exam ?
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    (Original post by xChelsea)
    The ECB are in control of the money supply not the individual countries.
    i thought it was, thanks
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    (Original post by nik2111)
    yes also its the only choice they have as they are in a EU montetary union fiscal aspects is all they can change so you cant really blame them for doing so as the monetary policy wasnt helping much with there interest rates.
    Just thought, should you say they're restricted due to the restraints of being attached to the Eurozone is that they can't have an annual budget deficit of over 3% of their GDP and must have a national debt lower than 60% of GDP, due to being tied into the stability & growth pacts?
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    (Original post by nik2111)
    yes also its the only choice they have as they are in a EU montetary union fiscal aspects is all they can change so you cant really blame them for doing so as the monetary policy wasnt helping much with there interest rates.
    but this too is limited following the agreeing of the Stability and Growth Pact
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    (Original post by xChelsea)
    Just thought, should you say they're restricted due to the restraints of being attached to the Eurozone is that they can't have an annual budget deficit of over 3% of their GDP and must have a national debt lower thatn 60% of gdp due to being tied into the stability & growth pacts?
    exactly what i was thinking!! lol
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    (Original post by rs91)
    exactly what i was thinking!! lol
    Haha , so you can say that it wouldn't be fully effective due to this?
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    (Original post by Elponchis_LOL)
    message me aswell please !
    hi can you please send the essay plan to me too
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    quick query, basically one reason for the lack of convergence is competitivness of different countries such that those that are least competitive will be affcted more during a recession because the chance they had of surviving in other economic conditions now longer exists, however, surely those who are more competitive will be equally affcted but in a differnt way because the exports that they relied on before which was a huge percentage of their GDP eg Germany, has contracted. is this right?
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    (Original post by xChelsea)
    Haha , so you can say that it wouldn't be fully effective due to this?
    you would say that the amount that the gov't could spend would be limited because they have to comply to the stability nd growth pact
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    is there some sort of 'punishment' for exceeding the stability and Growth pact requirements?
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    With regards to the Trade Liberalisation theme, It can be summarised like this:

    WTO talks about how the financial crisis has contracted world trade as major economies aggregate demand has fallen. The WTO argue that whilst developed countries try and use fiscal policies to recover, this is only a short term solution, and that to sustain long term growth countries need to focus on world trade. During a financial crisis, countries tend to become very protectionist in order to preserve their own economies. However this protectionism adversely affects world trade.

    Protectionist methods include Tarriffs, Domestic Subsidies, Non-Tarriff Measures and Anti-Dumping Actions.

    Advantages of protectionism are that it can protect senile and infant industries, preserve domestic jobs, prevent dumping, and protect from cheap labour.

    However the disadvantages of protectionism is that you lose the benefit of specialisation and economies of scale, which leads to lower prices. Consumers also have reduced choice, it can lead to a lack of innovation and also it can lead to retaliation.

    The WTO argue trade barriers should be reduced and that world trade should be liberalised and made free. This would increase the level of trade on an international scale.

    The benefits of increased world trade are access to larger markets, increased allocative, productive and dynamic efficiency due to competiton. Also access to new technology, and the trading of ideas which can lead to further information. Finally increased trade can raise living standards, as evidence has shown that countries which are more open to trade grow faster over the long run that those who remain closed. And increased trade means countries can grow beyond their domestic maximum capacity, therefore increasing their income per head.

    There are of course drawbacks to increased trade which need to be considered. These include the danger to infant and senile industries which may not be able to compete on an international level. Also increased specialisation can lead to countries relying too much on specific industries, which can cause problems if demand suddenly drops. Also, trade can lead to dumping. Another drawback is that as countries open up more to trade, their economies performance becomes more reliant on foreign performance, so they are more vulnerable to external shocks.

    However, the advantages of increased world trade outweigh the disadvantages. International Trade liberalisation is vital for the long term recovery of world economies.

    This is the point where I get stuck, because I do not have any evaluative points, and I know the 20 mark question requires a lot of evaluation. Please provide some evaluation points to finish this essay.
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    (Original post by rs91)
    is there some sort of 'punishment' for exceeding the stability and Growth pact requirements?
    apparently there is e.g. fines. However, the more influencial members of the Euro e.g. france and germany tend to ignore them and get away with it due to their strong influence (just checked on the internet)
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    Discuss the extent to which free trade will be beneficial to EU countries (20)
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    (Original post by deuces)
    apparently there is e.g. fines. However, the more influencial members of the Euro e.g. france and germany tend to ignore them and get away with it due to their strong influence (just checked on the internet)
    Yeah my teacher was mentioning these not so long back..
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    can someone say how countries can gain competiveness i got
    exchange rate devalueing
    interest rate low
    unit labour costs
    economic growth- going up
    banks are confident to loan

    evaulation
    devaulation long run lead to imports going up cost push
    economic growth could mean high inflation in the buiness cycle mite reduce competivness
    business confidence


    anyone got better/ more ideas?
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    Analyse impacts of liberalisation on international trade??

    any ideas...
    =)
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    (Original post by deuces)
    apparently there is e.g. fines. However, the more influencial members of the Euro e.g. france and germany tend to ignore them and get away with it due to their strong influence (just checked on the internet)
    thanx, we can use that as an evaluative point, to say that the stability and growth pacy and requirement to control gov't spending which is essential for the continued success of the euro is undermining?
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    (Original post by nik2111)
    can someone say how countries can gain competiveness i got
    exchange rate devalueing
    interest rate low
    unit labour costs
    economic growth- going up
    banks are confident to loan

    evaulation
    devaulation long run lead to imports going up cost push
    economic growth could mean high inflation in the buiness cycle mite reduce competivness
    business confidence


    anyone got better/ more ideas?

    just a thought, if talking about the countries of the EU which I assume we will have to refer to, devaluation of the currency isnt actually on option as individual countries cannot do this
 
 
 
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