Turn on thread page Beta

Edexcel Economics: Unit 2 Managing the Economy (June 2014) 6EC02 *official thread* watch

    • Thread Starter
    Offline

    7
    ReputationRep:
    Who's ready for Unit 2 Economics exam on 21st May 2014? Who's stuck on a particular topic of Unit 2? Wanna share some revision tips/ revision notes or how you answer a particular question? Please post below!
    Offline

    0
    ReputationRep:
    Any useful websites to help aid revision?
    • Thread Starter
    Offline

    7
    ReputationRep:
    (Original post by usernameunknown1)
    Any useful websites to help aid revision?
    I definitely recommend Tutor2U if you haven't seen it yet - it's the best!
    Offline

    2
    ReputationRep:
    (Original post by Swaany)
    Who's ready for Unit 2 Economics exam on 21st May 2014? Who's stuck on a particular topic of Unit 2? Wanna share some revision tips/ revision notes or how you answer a particular question? Please post below!
    What are the benefits and costs of economic growth?
    • Thread Starter
    Offline

    7
    ReputationRep:
    (Original post by Abel Demoz)
    What are the benefits and costs of economic growth?
    Benefits of economic growth:

    - Improvements in living standards: If an economy is growing, its likely that income per capita rises and and a decrease in absolute poverty. If people's incomes are rising then it means people have more disposable income (remaining income after taxes and bills have been paid), therefore they will be spending more, meaning more injections into the circular flow of income, increasing aggregate demand in the economy for goods and services. This leads to the multiplier effect because if people are demanding for g/s and are spending their disposable income on g/s, then it is an incentive for firms to employ more workers thus increasing productivity, subsequently those workers will have an income and thus more disposable income, increasing aggregate demand in the economy.

    - Increase in jobs: Greater output means more jobs are created, therefore reduces unemployment - labour has a derived demand.

    - Greater business confidence: economic growth has a positive impact on businesses. Growth means people are inclined to spend (because of more disposable income) which is a huge advantage to businesses as they will have greater profit margins once people shop from their business. It is also attractive to foreign investment inflows.

    - Increase in government revenue: Relating back to my previous points, since people are spending more and firms are still in business, it means that people will be paying more tax e.g. VAT on g/s consumers are purchasing; national insurance for those who are working and corporation tax from businesses. This is a huge benefit for the government because their revenue will increase, meaning they will be able to spend more on for example the education, healthcare, defence sector and public goods without having to raise taxes, as well as less government borrowing, which could help improve the government budget deficit!

    - Potential environmental benefits: As a country's economy grows, they have more resources available to devote research and development in cleaner technologies, which spurs further innovation. Furthermore, as income per capita rises, new wealth can be used to buy cleaner fuels like natural gas.



    Costs of economic growth:

    - High inflation: Looking at an aggregate demand and aggregate supply diagram, if the AD curve shifts to the right (increases), inflation will increase. This is because when demand increases during a boom, we get a positive output gap and so firms push up the prices of their g/s. Many of the faster-growing economies have seen a trend in rising inflation, known as structural inflation. Inflation tends to discourage investment and long term economic growth. This is due to uncertainty and confusion that is more likely to occur during periods of high inflation. (Think of other costs of inflation).

    - Increase in income inequality: When there is economic growth, it doesn't necessarily mean the benefits of economic growth will be distributed evenly. A rise in real GDP can often widen income and wealth inequality, (widening the gap between the rich and the poor) which is a reflect on an increase in relative poverty.

    - Can potentially worsen the environment: increased pollution, waste, congestion; concerns for sustainability of growth for future generations; depletion of non-renewable resources means a creation of negative externalities.

    - Worsens the BOP current account deficit: Increased economic growth means people will be spending more on imports causing a deficit on the current account - this is because people in the UK have a high marginal propensity to import.
    • Thread Starter
    Offline

    7
    ReputationRep:
    The words in bold are key terms that you should be using (correctly of course) in your unit 2 exam, your examiner will love you for using key terms properly - please look them up if you don't know the definition of them
    Offline

    0
    ReputationRep:
    Hey swaany thanks for the post really helpful, just one thing.

    Under the costs of economics growth you have written when AD shifts to the left it is an increase ?
    is this correct i thought this was a decrease ?

    thanks
    Offline

    15
    ReputationRep:
    hey im retaking this exam for the second year i got 56% last year which is absolutly crap. (despite this i got 30/30 for the 30 mark question) - so my advice is to revise the 6/8/12 mark questions because they are the most difficult
    • Thread Starter
    Offline

    7
    ReputationRep:
    (Original post by tevagx51)
    Hey swaany thanks for the post really helpful, just one thing.

    Under the costs of economics growth you have written when AD shifts to the left it is an increase ?
    is this correct i thought this was a decrease ?

    thanks
    Well spotted! Thank you for correcting me - I have edited this now
    • Thread Starter
    Offline

    7
    ReputationRep:
    If you are taking the unit 1 exam too, there is an official thread - please click the link below for some more revision help just like in this thread:

    http://www.thestudentroom.co.uk/show...117&p=47110899

    Enjoy!
    Offline

    0
    ReputationRep:
    No problem, I was more worried I had it wrong!

    many thanks for the help
    Offline

    0
    ReputationRep:
    I was just looking the January 2012 past paper for Edexcel and I'm a bit stuck on question 2b)iii) which is "Assess the case for an increase in the base interest rate set by the Monetary Policy Committee." It's worth 12 marks and I'm not really sure where to go with it. (Plus the mark scheme isn't particularly clear). Would anyone be able to help with the points to make and the structure to use? Thanks
    • Thread Starter
    Offline

    7
    ReputationRep:
    (Original post by samstarrz)
    I was just looking the January 2012 past paper for Edexcel and I'm a bit stuck on question 2b)iii) which is "Assess the case for an increase in the base interest rate set by the Monetary Policy Committee." It's worth 12 marks and I'm not really sure where to go with it. (Plus the mark scheme isn't particularly clear). Would anyone be able to help with the points to make and the structure to use? Thanks
    Structure for any 12 marker in Unit 2: 8 marks allocated for KAA (knowledge, application and analysis) therefore make 2 points each worth4 marks; 2 evaluation points each worth 2 marks.

    Q2 (b) *(iii): In the light of the information provided, assess the case for an increase in the base interest rate set by the Monetary Policy Committee.

    (Link to the January 2012 paper where question and extracts can be found -->)http://www.edexcel.com/migrationdocu...e_20120307.pdf

    This particular question is saying if to say the MPC did increase the base interest rate, make a case as to how and why it would be a good idea to solve the problems stated in the extract, and then evaluate how those points you wrote might not solve the problems.


    Model answer:


    - Point 1: If the high inflation is caused by demand-pull inflation, then increasing interest rates can make borrowing less attractive and saving more attractive. This is because when interests rates are high, you are getting a higher return for your savings, and the cost of borrowing is more. Therefore, if borrowing decreases, so does demand - shifting AD to the left because consumption (component of AD) has fallen, thus lowering inflation *2 marks*. (You can demonstrate this by an AD and AS diagram with AD decreasing; or by showing a supply and demand diagram with demand decreasing *2 marks*).


    - Evaluation for point 1: However, the extract implies that inflation is cost-push inflation, not demand-pull because of the '31.5% increase in world food prices in the past year' (extract 2 line 24), since one of the main causes of cost-push inflation is rising imported raw materials costs - like food. Also, cost-push inflation occurs when firms increase prices to maintain or protect profit margins. This is because if interest rates increase, borrowing costs increase, therefore experience high costs of production, meaning those costs will covered and be passed onto consumers as high prices for goods/ services *2 marks*.

    - Point 2
    : A rise in the interest rate in the UK relative to overseas can affect the exchange rate. This is because it would give investors a higher return on UK assets relative to their foreign-currency equivalents, tending to make sterling assets more attracting, thus making the pound sterling stronger. The effect of this is that when the pound is stronger, imports are cheaper, which resolves the problem of 'high import prices resulting from the big 25% fall in sterling from mid-2007' (extract 2 line 21) *2 marks*, therefore the inflation rate would fall back to the MPC's target of 2%, since it was above 3% as the extract stated *2 marks*.


    - Evaluation for point 2: However, a stronger pound means that UK's exports are dearer, which can reduce the UK's international competitiveness as a whole. As a result, it would negatively affect the balance of payments current account, which is why increasing the base interest rate is not the best idea *2 marks*


    ________________________________ _____________________________

    Hope this helps, and good luck
    Offline

    17
    ReputationRep:
    Doing this exam - getting low A/high B in practice papers so hopefully will get an A on the day
    Offline

    2
    ReputationRep:
    (Original post by Swaany)
    Who's ready for Unit 2 Economics exam on 21st May 2014? Who's stuck on a particular topic of Unit 2? Wanna share some revision tips/ revision notes or how you answer a particular question? Please post below!
    could someone tell me about the multiplier please?
    • Thread Starter
    Offline

    7
    ReputationRep:
    (Original post by mccrae01)
    Doing this exam - getting low A/high B in practice papers so hopefully will get an A on the day
    Nice! Hopefully you will, seems like you're getting the grip of economics
    • Thread Starter
    Offline

    7
    ReputationRep:
    (Original post by Haleyparker)
    could someone tell me about the multiplier please?
    What is the multiplier effect?

    The multiplier effect is about injections into the circular flow of income (injections come from investment, government spending and export sales that increase the demand for domestically produced goods and services) by stimulating further rounds of spending, which leads to a much greater and final impact on output and employment.

    How exactly does it work?

    Here's an example below of the multiplier in action:

    1) An injection occurs into the economy such as an increase in government spending

    2) Since government expenditure is a component of aggregate demand, this injection increases aggregate demand in economy for goods and services.

    3) This increase in demand for goods and services has caused firms to employ more workers to expand output, to meet the demand!

    4) Now that firms have employed more workers, those workers now have an income, so they have more disposable income, which can subsequently lead to an increase in aggregate demand because they want to spend more!

    5) This increase in aggregate demand has caused firms to employ even more workers and the effect carries on as before.


    The multiplier effect is like a cycle, an injection into the economy means it leads to one thing to another, and it usually impacts on output and employment, as described above. It is important to remember that the multiplier effect takes time to come into effect.




    Hope this helps!
    Offline

    2
    ReputationRep:
    Thank you soooooo much
    so is the negative multiplier effect the opposite?
    • Thread Starter
    Offline

    7
    ReputationRep:
    (Original post by Haleyparker)
    Thank you soooooo much
    so is the negative multiplier effect the opposite?
    Indeed so for example, the government decide to cut spending - which is what the current coalition government is doing - will lead to job losses, therefore can cause an initial fall in national income etc.. you know how it works now

    No worries x
    Offline

    2
    ReputationRep:
    (Original post by swaany)
    indeed so for example, the government decide to cut spending - which is what the current coalition government is doing - will lead to job losses, therefore can cause an initial fall in national income etc.. You know how it works now

    no worries :h x
    thank you soooooo soooooooo much :d:$
 
 
 

University open days

  • University of Exeter
    Undergraduate Open Days - Exeter Campus Undergraduate
    Wed, 24 Oct '18
  • University of Bradford
    Faculty of Health Studies Postgraduate
    Wed, 24 Oct '18
  • Northumbria University
    All faculties Undergraduate
    Wed, 24 Oct '18
Poll
Who do you think it's more helpful to talk about mental health with?

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

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