A2 Economics - F585 The Global Economy 3 June 2014

Reply 1780

sarbear282

Original post by Fas

Nah it was only two marks per point, diagram wasn't needed.

I mean graphs in the whole question paper

Reply 1781

FH1

11

What are (all) possible answers for maintaining a currency when it's under pressure to depreciate?

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Reply 1782

letsplayray

11

Okay so guys whats the general consensus? - I believe the paper was fairly straight forward, nothing out of the ordinary pretty predictable - only iffy question may have been Q2a, i put rise interest rates -> increase hot money flows-> increase demand for lat.
And govt intervention in market purchasing currency using foreign reserves

Reply 1783

Kuchkuchhotahai

15

Original post by Fleun

External Imbalance is just a large scale of surpluses and deficits on the BoP, hence the absence of a balance on the BOP.

Same thing :smile:

you could have discussed it both ways pal, either way I understand your point. I talked mainly a deficit i.e. Import expenditure greater than Export revenue. So how I'd go about correcting this...

Thought I was wrong at first, but as confirmed with my teacher all was fine.

Best of luck, I'm off!

Reply 1784

guyb121

5

Original post by Kuchkuchhotahai

Interest rates was not a feasible answer for the currency peg question. You're talking about Latvia trying to join the Euro peeps! :eek:

Anyhow's it was only 3 marks.. The essay was lovely.

Really?

I Said buying LATS using FOREX reserves - Increases Demand

&

Raising Interest Rates to attract hot money from investors abroad - Increases Demand

You sure that those two aren't acceptable?

Reply 1785

guyb121

5

Original post by letsplayray

Okay so guys whats the general consensus? - I believe the paper was fairly straight forward, nothing out of the ordinary pretty predictable - only iffy question may have been Q2a, i put rise interest rates -> increase hot money flows-> increase demand for lat.
And govt intervention in market purchasing currency using foreign reserves

Put exactly that, I'm pretty sure thats right :smile:

Reply 1786

Kuchkuchhotahai

15

Original post by guyb121

Really?

I Said buying LATS using FOREX reserves - Increases Demand

&

Raising Interest Rates to attract hot money from investors abroad - Increases Demand

You sure that those two aren't acceptable?

First one is because its not a monetary instrument, the second point is however.. So first point is fine.

Reply 1787

forsparta

Original post by Kuchkuchhotahai

Interest rates was not a feasible answer for the currency peg question. You're talking about Latvia trying to join the Euro peeps! :eek:

Anyhow's it was only 3 marks.. The essay was lovely.

Does increasing demand of currency by purchasing more of their own currency count as one

and then reducing supply of a currency by well reducing the supply of it on forex count as another method? or are these supposed to be a combined reason?

Reply 1788

Pokims1996

It was quite a nice paper! My teacher predicted 2c and 3 correctly so that helped.
For 1c, I first said the fact that fiscal expansion will increase tax revenues may help the budget deficit plan, then i said however, it depends on how much the government put in. I linked this to fiscal multiplier and used that as a comment point.
I finished by explaining balanced budget fiscal expansion.

My 1c and 2c were a bit over the place but I think i put enough down to get me 7+ on both at least/worst :smile:

Reply 1789

guyb121

5

Original post by Kuchkuchhotahai

First one is because its not a monetary instrument, the second point is however.. So first point is fine.

Oh I see, what should I have put for the second point?

Reply 1790

Kuchkuchhotahai

15

Explain 2 ways in which a fixed exchange rate, such as Latvia's peg to the Euro, might be maintained when it comes under pressure to devalue.

Conditions have to be met for Latvia to adopt the Euro, and one of these conditions was not to adjust its monetary policy. i.e. play around with interest rates.

Reply 1791

hazman18

reduces risk of hysteresis

Reply 1792

Kuchkuchhotahai

15

Original post by guyb121

Oh I see, what should I have put for the second point?

Internal devaluation could have been a possible point, then you link it to export competitiveness and how rising export demand pushes up the value of the currency.

Reply 1793

sarbear282

Original post by Kuchkuchhotahai

Explain 2 ways in which a fixed exchange rate, such as Latvia's peg to the Euro, might be maintained when it comes under pressure to devalue.

Conditions have to be met for Latvia to adopt the Euro, and one of these conditions was not to adjust its monetary policy. i.e. play around with interest rates.

Maastricts criteria is that interest rates can't be 2% higher than the lowest nations' interest rate- nothing about stability. Stability is only for exchange rates

Reply 1794

Kuchkuchhotahai

15

Original post by forsparta

Does increasing demand of currency by purchasing more of their own currency count as one

and then reducing supply of a currency by well reducing the supply of it on forex count as another method? or are these supposed to be a combined reason?

They're both a combined reason as the world banks increase in foreign reserves lending to Latvia was mainly to do just those two points.

Reply 1795

hazman18

Original post by AP65

On the 6 mark output gap question, what else could you have added apart from the fact : Fiscal expansion -> increase in AD-> which is possible as there is large spare capacity in the economy and working below potential?

i said the same and also said that it could reduce the risk of hysteresis of both labour and capital

Reply 1796

Pokims1996

Original post by Kuchkuchhotahai

Interest rates was not a feasible answer for the currency peg question. You're talking about Latvia trying to join the Euro peeps! :eek:

Anyhow's it was only 3 marks.. The essay was lovely.

How is it not a feasible answer? Latvia used interest rates to control the exchange rate did they not?

Reply 1797

forsparta

Original post by Kuchkuchhotahai

They're both a combined reason as the world banks increase in foreign reserves lending to Latvia was mainly to do just those two points.

Ah so 2/4, then what is the other reason? we have purchasing your currency/reducing the supply of it in forex markets but what is the second way to maintain a currency peg?

Reply 1798

Pro Crastination

19

Hi guys. I'm not going to be reading any more responses to this thread, as I believe I will worry myself about silly mistakes I haven't even thought of yet. I'm just wondering if anyone used any of the points from my 20 marker essay plan for the question? I essentially used it word for word (think I threw in some more stuff as I had time remaining also). I honestly feel pretty good for an A*, don't think I dropped more than 5/6 marks in that paper. Lots of the people I spoke to said they found the exam relatively straightforward also, however, so the grade boundaries may be higher (50-54, say) this year. I'd hope to be borderline nonetheless, and hoping to push on with F583 in a week (the one I've revised so much more for :biggrin:

).

Good luck to everyone, may the grade boundaries be forever in your favour.

Reply 1799

Kuchkuchhotahai

15

Original post by sarbear282

Maastricts criteria is that interest rates can't be 2% higher than the lowest nations' interest rate- nothing about stability. Stability is only for exchange rates

You must understand that interest rates is a measure of external devaluation and it contradicts the whole of extract 3 & 4 if you mention that as a means for adjusting exchange rates in Latvia..

They specifically stated "Latvia" implying one should be aware of the whole ID vs ED debate.. I'm not sure if you'll attain any marks or half of the marks; OCR are very weird with their marking.

A2 Economics - F585 The Global Economy 3 June 2014

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