Economics AS Level

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Chenice
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#1
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#1
Doing June '09 F582 paper.

And a question asked to comment on the effectiveness of one supply side policy in improving a country's current account position.

One of the suggestions in the mark scheme is cutting income tax, how does this improve a country's current account position?
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Fudge2
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Report 7 years ago
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(Original post by Chenice)
Doing June '09 F582 paper.

And a question asked to comment on the effectiveness of one supply side policy in improving a country's current account position.

One of the suggestions in the mark scheme is cutting income tax, how does this improve a country's current account position?
Perhaps in the long run the increased incentive to work will cause a greater supply of labour, shifting aggregate supply to the right and decreasing cost push inflation, thus making our exports cheaper relative to other countries' (depending on inflation elsewhere). So we would export more and therefore improve the current account.

That's the only thing I can think of...the main effect imo is short run worsening because aggregate demand increases inflation and lowers competitiveness, plus we tend to import a lot so if incomes go up we would spend a lot on importing...


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Chenice
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#3
Report Thread starter 7 years ago
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(Original post by Fudge2)
Perhaps in the long run the increased incentive to work will cause a greater supply of labour, shifting aggregate supply to the right and decreasing cost push inflation, thus making our exports cheaper relative to other countries' (depending on inflation elsewhere). So we would export more and therefore improve the current account.

That's the only thing I can think of...the main effect imo is short run worsening because aggregate demand increases raising inflation and lowering competitiveness, plus we tend to import a lot so if incomes go up we would spend a lot on importing...


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Ah thank you!!! That makes sense now
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Fudge2
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#4
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(Original post by Chenice)
Ah thank you!!! That makes sense now
no probs :-)


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