Economics Unit 2 prediction for 17th may 2013 :)

Well our teacher has taught us an acronym for supply side policies:

Privatisation
Incentives (cut benefits, cut income tax, incentive to work)
Education

Deregulation
Investment
Entrepreneurship
Trade Union Reform (reduce TU power, less strikes = more output)

Fair amount to talk about there and fairly easy to evaluate

I believe the mark scheme will limit you to picking 3/4 Supply Side policies and expanding rather than doing 7 and not going in to detail. That's my understanding, are you sure we can do what you say?

Reply 41

MobQ

Original post by NabRoh

I believe the mark scheme will limit you to picking 3/4 Supply Side policies and expanding rather than doing 7 and not going in to detail. That's my understanding, are you sure we can do what you say?

Yeah obviously not talk about all of them, but if you expand on 3/4, I'd say its fairly easy to answer a 30 marker on. Well I'd find supply side easy to talk about, guess people have strengths in different areas of the topic :smile:

Reply 42

MobQ

Original post by QwertyG

What could you write about for privatisation and investment?

For investment doesnt interest rates play a bigger part? how can it be related to SSP?

Privatisation you would write that government would sell public sector businesses to the private sector, because there is no profit motive for the government so they would use resources inefficiently, so if you hand it over to the private sector, then people will have a profit motive and manage it efficiently which would increase output. In terms of investment you could write that the government can pay out subsidies to firms which they can then use to purchase capital goods with, with increases output. I agree that you can't talk about much for investment.

Reply 43

hannah1258

Original post by MobQ

Well our teacher has taught us an acronym for supply side policies:

Privatisation
Incentives (cut benefits, cut income tax, incentive to work)
Education

Deregulation
Investment
Entrepreneurship
Trade Union Reform (reduce TU power, less strikes = more output)

Fair amount to talk about there and fairly easy to evaluate

just wondering what the points for fiscal and monetary would be and theyre evaluations so far i would put:

FISCAL - Increase gov spending
- lower income tax
- lower corporation tax

MONETARY - lower interests rates

not sure of the eval points yet any ideas?

Reply 44

Musta96

Original post by MobQ

Well our teacher has taught us an acronym for supply side policies:

Privatisation
Incentives (cut benefits, cut income tax, incentive to work)
Education

Deregulation
Investment
Entrepreneurship
Trade Union Reform (reduce TU power, less strikes = more output)

Fair amount to talk about there and fairly easy to evaluate

Can you give me an evaluation point for each supply side policy please ?

Reply 45

Dilzo999

19

A evaluation for each policy is TIME LAG. For example there's a delay when interest rates are set of about 18 months to 2 years until the full effects are seen and people on fixed mortgages will take even more time to get into effect. Fiscal is calculated every year on the budget and there's a time delay of when the effects are seen. Supply side policies are the same where there is time lag. For Fiscal policy and Monetary policy the overall effects are dependant on the magnitude of the multiplier e.g. more injections and less leakages means an overall greater effect on the economy. Another one is that if the government are spending more there is an opportunity cost, more taxes blah. That's pretty much it for the 3 main policies. For Monetary policy as well you can say that an decrease in interest rates can initiate the accelerator effect where investment occurs causing AD to shift right making prices higher, firms see this and expand more causing the accelerator effect. Some supply side policies have fiscal AD movements as well e.g. tax incentives. You can talk about the magnitude of the interest rates increasing. Also you can say how an increase in interest rates causes an appreciation in the exchange rate worsening the balance account. Again it depends on elasticity of the Imports as if Imports are inelastic then people will still purchase them also it can cause unemployment from less exports. Truthfully I doubt I'd remember any of this when it comes to sit the paper.

Reply 46

TheMan100

9

When evaluating, areas for the discussion (depending on if they're applicable for the question/context):
Time Lags
See above post.

Short run/long run
E.g. using monetary policy to increase growth is good in the short run, but in the long run can cause inflationary-pressures... need supply side policies in the long run.

(Business/Consumer) Confidence
If confidence is low, expansionary (fiscal/monetary) policy will be ineffective. E.g. a decrease in income tax may not necessarily increase consumption; instead, people may save more.

Performance of the world economy
E.g. if the rest of the economy is in a recession, we cannot rely on trade to drive growth or to provide stable economic conditions.

Re-distribution
E.g. the government reducing transfer payments to reduce the deficit, may mean the poor become worst off; relative poverty increases. Although I'm not sure... is this more of an analysis than evaluation?

Multipliers
Could be a negative or positive multiplier... What is it, how will it affect the economy? Try and explain it in coherent steps.

Alternative Measures (within a policy)
E.g. to reduce the deficit, the government may only be reducing government expenditure, alternatively, they could just increase taxes or increase taxes and decrease government expenditure at the same time; perhaps balancing the two.

Alternative Policies
Perhaps, depending on the question, you could argue for the use of monetary policy over fiscal policy or vice versa, for example. This depends on the context, question and the arguments you're able to come up with for each policy though.

Off-setting effects
An example with regards to unemployment... Yes, the government reducing its expenditure (to reduce the deficit) may increase unemployment. However, lower benefit payments may increase the incentive to work, which could potentially mean unemployment decreases (offsetting the original decrease). Another possible point could be that, although the government may reduce expenditure on education and training schemes which could result in an unskilled workforce, the private sector could possibly step in and fill the 'gap' in one way or another; maybe in the form of apprenticeships?

----

These are just things I've thought of and came up with after going through the mark schemes. I personally think it's best to make a few great points, as opposed to many good/mediocre points... so don't try and write about EVERY possible thing you can think of in the essay, but instead try to focus on the key points which you can write a lot about and explain in-depth.

(edited 10 years ago)

Reply 47

kurdabora

Is it best to do the 30 marker first?

What's some good evaluation tips I'm horrible at evaluating 😟

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Reply 48

S.ahmed

Help please. Explain two causes of falling real disposable income. I wrote fall in wages and increase in taxes but need help explaining it

Reply 49

Shar-Sharaff

Original post by MobQ

Privatisation you would write that government would sell public sector businesses to the private sector, because there is no profit motive for the government so they would use resources inefficiently, so if you hand it over to the private sector, then people will have a profit motive and manage it efficiently which would increase output. In terms of investment you could write that the government can pay out subsidies to firms which they can then use to purchase capital goods with, with increases output. I agree that you can't talk about much for investment.

Of course u can talk much about investment....because as investment increases it means more goods will be produced therefore demand for labours will also be increased decreasing unemployment and so after effects...like multiplier effect income, wealth

Reply 50

dan94adibi

14

Original post by S.ahmed

Help please. Explain two causes of falling real disposable income. I wrote fall in wages and increase in taxes but need help explaining it

Disposable income = income earned - direct tax + welfare benefits.
Real disposable income = disposable income - inflation.

So if inflation is high then real disposable income is falling.
Also if nominal disposable income is lowered real disposable income is falling. A fall in welfare benefits or increase in direct tax can lead to a fall in nominal disposable income and hence real disposable income.

Reply 51

muf_mur

19

who is completely not ready for this exam and is looking for a last minute miracle to pass (like me :biggrin:

)

Reply 52

davidmizrahi

Original post by Amydx6

Can anyone tell me what the difference between CPI and RPI is and why the figures are always so dramatically different?

CPI measures the average household cost of living and remember that it does not include mortgage interest repayments whereas RPI does.

Reply 53

MobQ

Original post by muf_mur

who is completely not ready for this exam and is looking for a last minute miracle to pass (like me :biggrin:

)

I'm hoping the questions ask for lots of diagrams... easy marks there :P

Reply 54

Shar-Sharaff

Guys can u Explain me in detail Why economic growth is in adequate as a measure of changes in living standards over time

Reply 55

ineedtorevise127

20

does anyone know where I can find a good definition list for ECON2?

Reply 56

ineedtorevise127

20

Why is a a fall in government spending likely to increase unemployment and reduced AD?

I DON'T understand how to explain the multiplier and the effects an increase in govt spending and decrease in govt spending has on the economy?

Reply 57

dan94adibi

14

Original post by Shar-Sharaff

Guys can u Explain me in detail Why economic growth is in adequate as a measure of changes in living standards over time

GDP does not take into account the black markets.
For example in the UK it is estimated that black market makes up 7% of the economy while in Russia about 50% hence it kind of underestimates the living standards.

Also GDP has a very little sense of income distribution. Just because the economy is growing fast doesn't mean that income is being distributed evenly. In fact it is argued that the benefit of economic growth goes to people with top jobs an economy so therefore again its inaccurate.

When we measure GDP between countries we usually turn them into a single currency usually dollar (GDP at PPP). Exchange rates can violate from month to month or year to year. For example if there is a fall in Renminbi (Chinese currency) against the US dollar it might imply that standards of living are falling even though their economy is growing really fast.

Population issues are also a problem (GDP per capita).
GDP might be growing really fast but if the population is growing at an even faster rate then we have problems.

Hope this helps!

Reply 58

dan94adibi

14

Original post by ineedtorevise127

Why is a a fall in government spending likely to increase unemployment and reduced AD?

I DON'T understand how to explain the multiplier and the effects an increase in govt spending and decrease in govt spending has on the economy?

Imagine the government decides to increase its spending on welfare benefits. Ceteris paribus this will lead to higher real disposable income for the citizens and hence consumptions is likely to rise (hence an increase in AD).
If consumption is rising this means that demand for firms are rising hence they'll have to increase their capacity to meet the increasing demand and off course this leads to higher employment since the firms need new workers to meet the new demand. (This is the multiplier effect. Initial investing has lead to an even further increase in income)

BUT this is not always the case. Here the government spending may actually lead to unemployment. As the government decides to increase welfare benefits people may find it better to sit home while go out and work. Although consumption is likely to rise then but this could lead excess demand (demand pull inflation)

Reply 59

NabRoh

11

Original post by TheMan100

----

These are just things I've thought of and came up with after going through the mark schemes. I personally think it's best to make a few great points, as opposed to many good/mediocre points... so don't try and write about EVERY possible thing you can think of in the essay, but instead try to focus on the key points which you can write a lot about and explain in-depth.

That's just the problem for me. How do you expand and go into so much detail to warrant 4-6 marks for the point?
Taking your confidence one for example, how do you turn a standard "income tax decrease won't necessarily encourage spending" to a full-blown 6 mark eval?

Thank you.

Economics Unit 2 prediction for 17th may 2013 :)

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