Join TSR now and get all your revision questions answeredSign up now

F581/ F582 Economics June 2013 Watch

  • View Poll Results: How hard did we find this exam ?
    so hard i felt like crying through the exam
    13
    12.50%
    very difficult , but one or two were alright
    13
    12.50%
    fairly standard
    33
    31.73%
    quite easy , with one or two hard ones
    35
    33.65%
    so easy i felt like dancing throughout the exam
    10
    9.62%

    Offline

    0
    ReputationRep:
    (Original post by >Username<)
    What is a current account deficit? Is it different to a budget deficit?
    friend, a budget deficit is when the government spends more than it receives in taxes

    a current account deficit is when a country imports more than it exports (as well as the other components of the current account like income)
    Offline

    0
    ReputationRep:
    (Original post by >Username<)
    What is a current account deficit? Is it different to a budget deficit?
    Current account Deficit is when the value of imports exceed the value of exports, where a budget deficit is when government spending exceeds tax revenue. (Or at least that's my understanding)
    Offline

    0
    ReputationRep:
    (Original post by SixteenSaltines)
    friend, a budget deficit is when the government spends more than it receives in taxes

    a current account deficit is when a country imports more than it exports (as well as the other components of the current account like income)
    Important to note that this is the value of Imports and Exports, and not the quantity! Always used to get me
    Offline

    0
    ReputationRep:
    (Original post by >Username<)
    What is a current account deficit? Is it different to a budget deficit?
    The current account is a measure of Balance of Payments,

    It is made up of
    -Trade in goods
    -Trade in Services
    -Investment incomes
    -Transfer of money

    If a current account deficit occurs you only need to now that,
    it means either:
    -A TRADE DEFICIT = Exports < Imports
    -A BUDGET DEFICIT = Taxation Revenue < Government Spending

    I hope that helps
    Offline

    0
    ReputationRep:
    Does anyone need the specification for the Economics F582 Exam !
    Offline

    0
    ReputationRep:
    Sure
    Offline

    2
    ReputationRep:
    How does fiscal, monetary and supple side policies control the current account balance?

    And what does 'trade offs' between policies mean?
    Offline

    2
    ReputationRep:
    (Original post by SixteenSaltines)
    x

    (Original post by willzumza)
    x

    (Original post by willzumza)
    x

    (Original post by HeyMickey6)
    x
    Does that mean that a trade deficit which is more imports than exports is the same as a current account deficit?
    Offline

    0
    ReputationRep:
    (Original post by Fas)
    OK for those stressing - here's a nice little Plan for the infamous essay " Discuss whether a current account deficit is always harmful " :

    Introduction - provide a general understanding of the current account , what a deficit means and then answer whether you think its harmful or not ( that last bit ain't necessary though )



    LRAS DIAGRAM REPRESENTING REDUCTION IN AGGREGATE DEMAND

    EVALUATION :

    - depends on duration of deficit , if its been going on for ages it shouldn't cause a lot of problems
    - depends on the level of economic activity in the economy at the time as to whether the reduction in AD caused by the deficit will be very harmful or not
    Thanks for essay points for the current account deficit, could you please explain the two points? For the first point wouldn't it be more harmful it its been going on for a long time? Also would it be harmful in the short and long run?
    Offline

    13
    ReputationRep:
    (Original post by >Username<)
    Does that mean that a trade deficit which is more imports than exports is the same as a current account deficit?
    A trade deficit can cause a current account deficit but there are other components of the current account.

    This video may help you.http://www.youtube.com/watch?v=JKRBpJZ92QM
    Offline

    13
    ReputationRep:
    (Original post by >Username<)
    How does fiscal, monetary and supple side policies control the current account balance?

    And what does 'trade offs' between policies mean?
    You wouldn't use fiscal policy to combat a BoP problem.

    If you had a deficit then you would reduce interest rates to depreciate your exchange rate to try and encourage exports.

    You could use supply side policy to promote FDI in your economy and you could also increase the productivity of your labour force in order to increase international competitiveness and again help exports.

    A trade off is where two policy's work against each other. For example if you have high inflation and a current account deficit. You would increase interest rates to stop inflation but this will also worsen the BoP problem because of an appreciating currency.
    • Thread Starter
    Online

    16
    ReputationRep:
    (Original post by cheese94)
    Thanks for essay points for the current account deficit, could you please explain the two points? For the first point wouldn't it be more harmful it its been going on for a long time? Also would it be harmful in the short and long run?
    yeah i can -

    nah if its been going on for a long time , then that shows that theres still quite massive capital and financial flows into the economy that its able to sustain a deficit for a long time - hence the country can still attract investment and it shows the country can cope with it , thus it's not as harmful.

    as for the position of the economy one - if the economy is operating at significantly spare capacity then a reduction Aggregate Demand is unlikely to have much of an effect on employment and the price level ( draw an LRAS Diagram - that gives a better representation of what i mean ) than if the economy was operating at full capacity - here the effects could be fairly harmful employment would drop considerably and so would real national output.

    sorry if thats not explained properly haha , but an LRAS Diagram can explain that better
    Offline

    0
    ReputationRep:
    (Original post by >Username<)
    How does fiscal, monetary and supple side policies control the current account balance?

    And what does 'trade offs' between policies mean?

    I could be wrong, but:

    FISCAL - This is a less direct way of tackling a current account problem. This aims to affect aggregate demand in some way; a reflationary policy will increase AD and reduce the current account deficit. This is because, if the fiscal policy focuses on reducing taxation, there may be more of an incentive to work and so the government spends less on transfer payments (like JSA) which is a component of the current account. In the long run, firms may want to increase productive capacity and so invest, meaning AS shifts to the right and as such firms can engage more efficiently in international trade as they have more supply. More directly, decisions on tax like excise duty will encourage / discourage trade in goods and services. I could be wrong, not sure on this one.

    MONETARY - By the manipulation of interest rates, the MPC can encourage / discourage those with 'hot money' or FDI. This links to the exchange rate, and a strong currency will make imports cheaper and exports dearer (causing an increase in the current account deficit) and vice-versa.

    SUPPLY SIDE - If supply increases, countries can trade more internationally with less restrictions. This will cause a decrease in the current account deficit. In addition, foreign investors will be attracted to an educated and productive workforce. Again, I'm not too sure.

    A 'trade-off' is simply an evaluation between the different policies and which will be most effective (evaluate strengths/weaknesses and compare them). It could also link to how two policies could work together. Sorry I couldn't be of more help, still a bit shaky myself on this topic. If anyone else can help out, I'd appreciate it too!
    Offline

    0
    ReputationRep:
    could someone kindly write down all the conflicts between the policies please?
    Offline

    0
    ReputationRep:
    (Original post by Fas)
    yeah i can -

    nah if its been going on for a long time , then that shows that theres still quite massive capital and financial flows into the economy that its able to sustain a deficit for a long time - hence the country can still attract investment and it shows the country can cope with it , thus it's not as harmful.

    as for the position of the economy one - if the economy is operating at significantly spare capacity then a reduction Aggregate Demand is unlikely to have much of an effect on employment and the price level ( draw an LRAS Diagram - that gives a better representation of what i mean ) than if the economy was operating at full capacity - here the effects could be fairly harmful employment would drop considerably and so would real national output.

    sorry if thats not explained properly haha , but an LRAS Diagram can explain that better
    Thank You! I finally understand spare capacity now wuhooo!
    Offline

    2
    ReputationRep:
    (Original post by wolalala)
    could someone kindly write down all the conflicts between the policies please?
    The objective of growth and low unemployment may benefit from expansionary demand side policies. however may make it more difficult for the government to achieve low inflation.

    Also the marginal propensity to consume may conflict with high interest rates to reduce demand pull inflation, and also may have a bad effect on the exchange rate and so the balance of payments and employment

    Hope that helped :cool:
    Offline

    0
    ReputationRep:
    Is the current account deficit harmful because the exchange rate is too high? i.e. if the currency is overvalued imports become competitive and there will be a higher quantity of imports thus exports will become uncompetitve and there will be a lower quantity of exports. (if that makes sense)
    Offline

    0
    ReputationRep:
    (Original post by iggyDash)
    The objective of growth and low unemployment may benefit from expansionary demand side policies. however may make it more difficult for the government to achieve low inflation.

    Also the marginal propensity to consume may conflict with high interest rates to reduce demand pull inflation, and also may have a bad effect on the exchange rate and so the balance of payments and employment

    Hope that helped :cool:
    ohh I see, Yes, It did help, thank you for replying is there any conflicts with BOP?
    Offline

    0
    ReputationRep:
    Let's play a game. Say something (like a fact) about F582 that people might not know but will/may be helpful in the exam.

    e.g:

    When the interest rates are set as low as around 1%, this can have a harmful effect because if they are needed to be reduced further it won't have a significant impact on the economy.
    Offline

    13
    ReputationRep:
    (Original post by cheese94)
    Is the current account deficit harmful because the exchange rate is too high? i.e. if the currency is overvalued imports become competitive and there will be a higher quantity of imports thus exports will become uncompetitve and there will be a lower quantity of exports. (if that makes sense)
    A CA deficit is bad as it means there'll be a reduction in AD, and therefore less output, more unemployment etc etc.

    A deficit can be self correcting as lower demand for our exports means a depreciation in our currency which eventually will promote export demand. It's a fluctuating cycle.
 
 
 
Poll
If you won £30,000, which of these would you spend it on?

The Student Room, Get Revising and Marked by Teachers are trading names of The Student Room Group Ltd.

Register Number: 04666380 (England and Wales), VAT No. 806 8067 22 Registered Office: International House, Queens Road, Brighton, BN1 3XE

Quick reply
Reputation gems: You get these gems as you gain rep from other members for making good contributions and giving helpful advice.