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    Hi, no ones made a Econ4 thread so thought I'd make one.

    Where are you guys up to in econ4?

    We've just started Fiscal policy, very behind! My teachers not been here for a while too so we've missed quite a few lessons.
    I've started making notes using my textbook, gone over monetary policy+globalisation.
    I'm finding it much more difficult that econ3 - econ3 had a lot of diagrams which I understood and liked.

    Any tips from anyone resitting econ4?

    Seriously worried I'm so behind, haven't been given any past papers for homework, cant do much either as we've done literally nothing. Hyperventilating!!!
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    im finding econ 4 very difficult especially globalization and EU related topics
    but the rest isn't to bad .... i need to get at least 92 for an A*
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    (Original post by stuamisb)
    im finding econ 4 very difficult especially globalization and EU related topics
    but the rest isn't to bad .... i need to get at least 92 for an A*
    Im finding it difficult too! Have you finished the syllabus?
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    How does inflation affect the exchange rate?
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    (Original post by LS95)
    How does inflation affect the exchange rate?
    Im struggling to find info on this too. This article helped though on the BBC today
    http://www.bbc.co.uk/news/business-22605884
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    (Original post by LS95)
    How does inflation affect the exchange rate?
    An increase in inflation might mean an increase in interest rate or a reduction in quantitative easing to control the money supply in the market, as part of monetary policy. In the case when interest rate increase, the consequence would be an increase in short-term investment flowing into the country. This means there is an increase in demand for the currency, exchange increases as a result, if it is a floating exchange rate system.
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    Is everyone practising past papers or going through notes?
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    (Original post by hypercube)
    An increase in inflation might mean an increase in interest rate or a reduction in quantitative easing to control the money supply in the market, as part of monetary policy. In the case when interest rate increase, the consequence would be an increase in short-term investment flowing into the country. This means there is an increase in demand for the currency, exchange increases as a result, if it is a floating exchange rate system.
    So would it be correct in saying that if inflation decreases in the UK, then prices will be lower and so demand for the £ will increase as a result, and the currency will appreciate?
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    (Original post by LS95)
    So would it be correct in saying that if inflation decreases in the UK, then prices will be lower and so demand for the £ will increase as a result, and the currency will appreciate?

    Yes, but decrease in inflation doesn't mean 'prices will be lower', (unless the inflation decreases so much that it goes negative ie: deflation). It just mean that the rate of increase of the price level has slowed down. (Think of inflation as the growth of prices if you like).

    If the decrease of inflation is sustainable, in the long run, the growth of our prices might be lower than in other countries. Our exports would appear to be cheaper. This might mean that foreign consumers would want more of our exports. To do this they need to buy the UK currency, leading to an increase in exchange rate, if the exchange rate is a free floating one.
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    (Original post by hypercube)
    An increase in inflation might mean an increase in interest rate or a reduction in quantitative easing to control the money supply in the market, as part of monetary policy. In the case when interest rate increase, the consequence would be an increase in short-term investment flowing into the country. This means there is an increase in demand for the currency, exchange increases as a result, if it is a floating exchange rate system.
    An increase in inflation above trading partners inflation lead to a decrease of domestic exports due to a decrease in international price competitiveness. As a result this leads to a decrease in the demand for the £ per Euro and also £ per $. Also as inflation is lower in other trading partners this leads to a decrease in price competitiveness of domestic UK industries so increase in demand for imported goods in UK, so it increases the supply of the £, also in the UK we have a high marginal propensity to consume imports due to more choice and different quality of goods and services.

    Although it make take people longer to respond to lower prices abroad due to lower inflation, also it assumes that including transportation costs + import tax etc the price is still lower than domestic prices.

    Also it make take a long time for the depreciation of the exchange rate - £ sterling due to goods being more price inelastic in the short run and more price elastic in the long run as firms are in contracts in the SR and it takes time for a significant amount of people to see the benefit.

    Furthermore the exchange rate for other trading partners may increase (appreciate) due an increase in demand for their currencies, this will cause exports of these countries to cost more therefore the value imported goods/services may increase so there may be a decrease in the demand for imports if they now cost more than domestically produced goods, although it depends on how significant the increase in demand for the trading partners currency is.

    I'm assuming a free floating exchange rate is adopted. Also if a significant amount of goods are imported due to higher domestic inflation cost push inflation has more of a volatile effect on domestic inflation.

    As a result of the increasing domestic inflation, assuming it's demand pull inflation the Bank of England and government may implement contractionary demand management policies. Ie - Market based fiscal policy can be used, an increase in tax rates reduces disposable therefore people consume less goods, more significant on goods such as cars which are usually imported. As labour is derived demand, this also causes a decrease in demand for labour so unemployment increases, a negative multiplier effect is caused. Therefore AD decreases (show on diagram) reducing inflation from PL1 to PL2, but there's a trade off with a decrease in output- real gdp.
    If the economy is in a boom- positive output gap an increase in taxes may not cause a significant decrease in AD also increase in VAT may cause cost push inflation in the SR but in the LR will reduce demand for these produces - depending on elasticities.

    This http://www.bbc.co.uk/news/business-22605884 inflation decrease from lower air travel is a decrease in cost push inflation - SRAS shifts right.
    Remember inflation is calculated by the CPI - basket of 10 goods.
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    (Original post by LS95)
    How does inflation affect the exchange rate?
    Please look at my recent post on the thread this addresses your question
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    (Original post by Vividness)
    Im struggling to find info on this too. This article helped though on the BBC today
    http://www.bbc.co.uk/news/business-22605884
    Look at my recent post on the thread it explains it
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    Sooo much more confident for this exam than ECON3 on tue, goddamn 25 markers can be a ***** sometimes!
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    (Original post by RikersIsland)
    Sooo much more confident for this exam than ECON3 on tue, goddamn 25 markers can be a ***** sometimes!
    Same here pal, probably because my school haven't done Econ 3 since December, plus there's so much they can ask you on ECON3 whereas ECON4 questions tend to be fairly similar in nature.
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    How would you answer this question
    Using the data and your economic knowledge, to what extent do you agree with the view
    that the UK economy would benefit if the euro were to be adopted by the UK at some
    point in the future? (25 marks)

    Really hate EU questions!
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    ECON3 exam wasn't disastrous so hopefully this exam is of the same standard. Really hoping for 90+ UMS in this but I completely messed it up in Jan.
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    I need 93 for an A*, really doubt i'll get that considering I got an E in unit 2 lol. Anyone have the jan 13 paper please?
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    anyone have any generic evaluation points?
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    (Original post by LS95)
    anyone have any generic evaluation points?
    Have you been taught WEESTEPS?
 
 
 
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