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Economics Unit 2 Edexcel - Managing the UK economy Tuesday 19th May 2015 (PM) Watch

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    examples of fiscal policy? apart from reduced income/ corporation tax and VAT? I Kind of get fiscal and supply side mixed up
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    (Original post by badaman)
    Nice work dude!
    To what extent might fiscal policy help the UK government achieve its macroeconomic objectives?
    You wan't to talk about the conflict between policies. There is a lot to write about. Usually they ask you to chose 3 policies and write about just those 3.

    You could say for example, that to increase employment (one objective) they would need to spend more on education and training (draw an AD/AS curve to show the impact). This however, would increase the national debt (another objective) as the money would either need to be borrowed or come from increased tax receipts. Thus, these objective conflict.

    You could also use some of the evaluation techniques I wrote about. For example, in the short run the debt would increase due to increased spending. However, in the long run once employment has increased, there will be more people paying tax, and higher levels of tax for higher salaries, therefore the revenue from tax receipts will increase, balancing the books and reducing the debt.

    Another evaluation point would be that if less people are claiming job-seekers due to higher employment, less is spent on benefits, so the national debt is reduced.

    This would be one point you could make. To get top marks you need to make 2 full explained, fully analysed and fully evaluated points, or 3 of slightly worse quality. Try to get 2 quality ones in and throw another in at the end if you have time.
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    (Original post by stabilobossgreen)
    can someone explain HDI please
    HDI, or the Human Development Index is a measure of development and economic growth. It is not an official measure used by the UK.

    It composes of several factors:

    - Education: the average number of years of schooling in a country

    - Health: the average life expectancy in a country

    - GDP per capita according to PPP: the income per person, adjusted according to the purchasing power of a country i.e how much of the basket of goods someone can buy with the average salary.

    The last point can be tough, but you don't have to explain it, just describe it. They can only really ask you a 4 mark question on that, one mark for the opening point and one mark for each of the factors.

    Good luck
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    can someone explain how CPI is measured, thanks!
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    (Original post by 98panashe)
    examples of fiscal policy? apart from reduced income/ corporation tax and VAT? I Kind of get fiscal and supply side mixed up
    Change in taxation and government spending is known as fiscal policy, and it has an impact on the amount of spending in an economy.

    - An increase in tax or a cut in government spending decreases aggregate demand, with multiplier effects.

    - A decrease in tax or a rise in government spending increases aggregate demand, with multiplier effects.

    Examples of taxes:

    - VAT
    - Corporation tax
    - Higher taxes on high earners
    - Personal allowance (could lower or raise it, same effect as lowering or raising taxes)

    Examples of government spending:

    - Spending on public services such as NHS to improve healthcare
    - Spending on education and training to increase productivity and output
    - Subsides to encourage production of certain goods
    - Spending on benefits to improve living standards for low income earners
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    What formulas do we need in the exam?
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    (Original post by Lpfuller)
    can someone explain how CPI is measured, thanks!
    CPI - Consumer Price Index

    - Price Survey
    - Basket of Goods (600)
    - Weighted Average
    - Index Number formed
    - Use of Base Year
    - Food + Expenditure Survey (7000 households)
    - Excludes Housing Costs
    - Basket of Goods changed annually
    - Survey taken Quarterly
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    to what extent does house prices have an impact on the economy?
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    (Original post by .JC.)
    Change in taxation and government spending is known as fiscal policy, and it has an impact on the amount of spending in an economy.

    - An increase in tax or a cut in government spending increases aggregate demand, with multiplier effects.

    - A decrease in tax or a rise in government spending decreases aggregate demand, with multiplier effects.
    w8 yeah. You've got them the wrong way around. Expansionary fiscal policy is to increase AD, which you can do by increasing government spending and lowering taxation. Also, deflationary fiscal policy is to decrease AD, which you can do by decreasing government spending and increase taxation?
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    (Original post by Lpfuller)
    can someone explain how CPI is measured, thanks!
    - Inflation is measured in the UK by changes in CPI.

    - The CPI is given as an index number. This means that it is a percentage.

    - It is usually shown on a year to year basis, so you need to calculate the change over original x 100.

    - The Livings Costs and Food Survey collects information from a sample of nearly 7000 households in the UK, using self-reported diaries of all purchases (hence why it could be incorrect).

    - Weights are assigned to each item that is bought by the average household.

    - The weights show the proportion of income spent on each item.

    - A price survey is undertaken by civil servants who collect data once per month about changes in the price of the 650 most commonly used goods and services in a variety of retail outlets.

    - CPI DOES NOT include housing costs, the biggest thing which consumers spend their income on.

    Evaluation points:

    - Different countries use different measures (CPI and RPI) so comparing can be inaccurate.

    - It doesn't include housing costs so doesn't give a true reflection of the inflation in the economy.

    - The consumers surveyed could lie, making results inaccurate.

    - Items are constantly updating so the 650 may not be representative.

    - Products are different prices in different outlets, e.g Waitrose compared to Farmfoods.
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    (Original post by jshep000)
    w8 yeah. You've got them the wrong way around. Expansionary fiscal policy is to increase AD, which you can do by increasing government spending and lowering taxation. Also, deflationary fiscal policy is to decrease AD, which you can do by decreasing government spending and increase taxation?
    Thanks for pointing that out, read the definition from my revision guide to get the best one possible, seems they have a printing error.
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    (Original post by .JC.)
    Change in taxation and government spending is known as fiscal policy, and it has an impact on the amount of spending in an economy.

    - An increase in tax or a cut in government spending increases aggregate demand, with multiplier effects.

    - A decrease in tax or a rise in government spending decreases aggregate demand, with multiplier effects.
    Are those not the wrong way around?

    An increase in tax or a cut in government spending would decrease aggregate demand due to the lower amount of disposable income people have and the less government employment available (the government being the largest employer in the UK).

    And a decrease in tax or a rise in government spending would therefore lead to the opposite increasing aggregate demand. Or am I wrong?

    EDIT: Never mind someone got there first...
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    (Original post by .JC.)
    Thanks for pointing that out, read the definition from my revision guide to get the best one possible, seems they have a printing error.
    np brah. Think I know what rev guide you're on about, our teacher told us that was an error and to scribble it out. I'll edit my quote to you
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    (Original post by jshep000)
    np brah. Think I know what rev guide you're on about, our teacher told us that was an error and to scribble it out. I'll edit my quote to you
    There's a mistake on the cover too
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    (Original post by Hai_Ann)
    What formulas do we need in the exam?
    None as far as I'm aware. I mean you might be asked to work out the percentage increase/decrease. I don't think they ever ask you to calculate elasticity in Macro.
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    (Original post by yaya sanogo)
    to what extent does house prices have an impact on the economy?
    Doubt this will come up, as housing was a topic on the micro paper, but you never know.

    Housing is the biggest expenditure for consumers. You can talk about interest rates affecting mortgages, consumers have more 'income', they consume more and increase AD.

    Don't think we will be asked about the prices of housing, the more I think about it, the more it sounds like it's a micro topic.
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    (Original post by Hai_Ann)
    What formulas do we need in the exam?
    They have asked for candidates to calculate index numbers for the effects of inflation on prices once before. Be sure that you can do that (it basically involves working out the percentage increase with a base index number of 100).
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    (Original post by yaya sanogo)
    to what extent does house prices have an impact on the economy?
    wealth effect - so people import more which decreases AD
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    (Original post by .JC.)
    Doubt this will come up, as housing was a topic on the micro paper, but you never know.

    Housing is the biggest expenditure for consumers. You can talk about interest rates affecting mortgages, consumers have more 'income', they consume more and increase AD.

    Don't think we will be asked about the prices of housing, the more I think about it, the more it sounds like it's a micro topic.
    cheers pal
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    do we need to know about exchange rate policy
    also can someone give me a few evaluation points
 
 
 
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