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A2 Economics - F585 The Global Economy 3 June 2014

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Reply 580

Jack888

also how do I answer this?

distinguish between expansionary monetary and expansionary fiscal policy?

Reply 581

henso

Original post by Jack888

also how do I answer this?

distinguish between expansionary monetary and expansionary fiscal policy?

monetary is monetary policy so using Interest rates, money supply and exchange rates to increase AD. And fiscal policy is government expenditure and taxation decisions to increase AD (expansionary)

(edited 9 years ago)

Reply 582

PJ.

Original post by Jack888

also how do I answer this?

distinguish between expansionary monetary and expansionary fiscal policy?

Expansionary monetary policy is anything that increases the money supply. The 3 main components are manipulation of the interest rate, exchange rate and quantitative easing.

Expansionary (loose) fiscal policy is increasing AD by increasing Government spending and cutting Taxation

Reply 583

Jack888

Original post by PJ.

thanks, but what is the distinguishing point between them for 4 marks.

Reply 584

aroniglenn

Original post by YAAM

Also what is meant by capital flight? Thanks guys!

This is when investors pull money out of the country. I.e for Iceland, investors pulled millions out of the country when the government allowed their banks to collapse, causing the Krona exchange rate to depreciate significantly

Reply 585

aroniglenn

Original post by NPETER

Thanks, so how would you answer it as an exam question? Such as, "Explain what is meant by economic rebalancing" (4)

Economic rebalancing is the process of moving economic activity away from one area and towards another. This may be pursued by a government because one part of the economy has become too big relative to other parts. For example, in the UK, private sector growth is being pursued over public sector growth. This is because the private sector has the profit motive to be efficient and also because they produce goods for export, of which helps reduce the deficit on the current account. Another reason is because the budget deficit in the UK is large, making it unaffordable to grow the size of the public sector, especially due to the government's plan not to increase taxes.

Reply 586

aroniglenn

Original post by Jack888

thanks, but what is the distinguishing point between them for 4 marks.

The fact that you're saying fiscal policy is x and monetary policy is y is doing the distinguishing.
I guess you could say fiscal policy expansion involves possibility of running a budget deficit, but with monetary policy expansion, government finances are kept constant.

Reply 587

Econ95

Not sure if this has already been answered but what is the structure of a 10 marker in L3/L4 terms

Am I right in thinking it is L1 L2 L3 L4 L3 L4?

Reply 588

NPETER

Original post by Econ95

Not sure if this has already been answered but what is the structure of a 10 marker in L3/L4 terms

Am I right in thinking it is L1 L2 L3 L4 L3 L4?

essentially yes

Reply 589

zigglr

Please can someone explain hysteresis in simple terms, I'm having trouble understanding it?

Reply 590

sarbear282

Is the reason why estimates of the UKs output gap varies from -2.5% to -9% because of uncertainty/ difficulty measuring actual GDP, the existence of the black market/economy and why else?

Reply 591

sarbear282

Original post by zigglr

Please can someone explain hysteresis in simple terms, I'm having trouble understanding it?

This when long-term unemployment leads to further unemployment as people lose the necessary skills to work, lose motivation to work/ find a job ext. therefore leave the labour force

Reply 592

Dorko96

Can anyone help explain this question pretty please; Comment on the extent to which the statement by Christine Lagarde conflicts with the Uk Government's deficit reduction plan. (10 Marks) It's in extract 1?????

Reply 593

Dorko96

Also does anyone have any ideas about the effectiveness of policies to bolster demand? + and -'s would be great!

Reply 594

zigglr

Original post by sarbear282

This when long-term unemployment leads to further unemployment as people lose the necessary skills to work, lose motivation to work/ find a job ext. therefore leave the labour force

thanks

Reply 595

username963570

Original post by Ezz0

in answer to someone's internal devaluation question, I forgot who asked and my phones crashing too much to quote, anyway:

Internal devaluation is effectively reducing the costs of production for manufacturers, enabling them to sell the good for cheaper. As far as I'm aware this is how Latvia did it:

1. Sacked public sector workers and gave them pay cuts. With an excess supply of labour they'll eventually be a downward pressure on private sector workers. Which will then reduce unit labour costs

2. They increased one tax(eg VAT; not sure if it was VAT specifically in their case) and decrease payroll taxes(NI) which makes the cost of employing labour cheaper. Reducing the firms costs again. Notice that one tax goes up and one tax goes down, so overall tax intake is the same

I know the Latvian government reduced carbon tax, waste tax and reduced firms costs of meeting environmental standards, which again reduced firms costs of production, enabling them to sell their goods cheaper

I DO NOT think there was an increase in productivity, infact between the extract and tutor2u, I've read there was either no productivity gains or weak gains. Output per worker didn't increase, it was the unit labour costs which decreased which lowered the costs of producing the goods

Posted from TSR Mobile

no there wasn't any gains in productivity for Latvia, but in your analysis you could easily mention that there should be productivity gains, then when doing a commentary you could refer back to Latvia and mention how they're were no productivity gains, thus an external devaluation might be more effective.

Reply 596

JamieF95

Original post by NPETER

essentially yes

And the 20 marker L1L2L3L4 L2L3L4??

Reply 597

NPETER

Original post by Dorko96

Also does anyone have any ideas about the effectiveness of policies to bolster demand? + and -'s would be great!

Expansionary monetary policies bolster demand of the economy by lowering interest rates and/or increasing the rate of quantitative easing.

Pros should be self-explanatory.

Cons -
- UK has record low interest rates already --> lowering them further may have very little effect in boosting demand --> demand increases by a bit --> growth increases by a bit --> economic growth could still be deemed to be 'flat'
- The decrease in IR cannot match the previous fall from 5% to 0.5% --> effects may not match the previous policy to reduce IR --> may lead to negative IRs (I do not understand negative IRs)
- Monetary policy depends a lot on confidence --> market crash of 2008 damaged the UK economy's confidence --> effects are still lingering

etc.

Reply 598

NPETER

Original post by JamieF95

And the 20 marker L1L2L3L4 L2L3L4??

Intro:
L1 & L2

Analysis:
L3

Evaluation/Commentary:
L4

Alternative (depending on the question):
L4+

Conclusion/Judgement.

So yes, structure your answer in a way you feel most comfortable with.

I feel comfortable with:

L1 L2 L3L3 L4L4L4 L4+ conclusion

(edited 9 years ago)

Reply 599

chrishutch

Original post by sarbear282

Is the reason why estimates of the UKs output gap varies from -2.5% to -9% because of uncertainty/ difficulty measuring actual GDP, the existence of the black market/economy and why else?

You could also talk about the credibility of each figure. OBR say its -2.5% probs coz they are an organisation for the government. This would mean that they might manipulate their figures to match what the government is trying to do so they don't seem so bad. In contrast, Cambridge say its -9%, coz they don't have a bias; they wouldn't try and alter their figures to suit the governments aims so they are more objective.

However, it may have been the case that Cambridge didn't take into account the fact that due to hysteresis their potential output would fall. That would mean that the size of the output gap would be smaller and more similar to OBR's estimates (if the OBR did take this into account).

Hope this helps :smile: