AQA A2 Economics Unit 4 (23rd June 2016)

Hi, question on a very old 30 mark question, however, still relevant!
Discuss the view that, as an economy approaches full employment, inflation will inevitable accelerate. (Does this refer to the economy when we are at the natural rate of employment so there is no need to discuss ways in which the natural rate of unemployment and LRPC can shift? If so, do we are focus upon how rising unemployment such as a closing negative output gap and how this increases demand side and cost push inflation….?. Thus, would we’d discuss perhaps wage bargaining driving up costs as the labour pool reduces in size, adding cost push inflation? Then how growing confidence and more disposable income can cause demand side pressures so demand pull inflation etc? Then this can lead to the wage price spiral and just evaluation in the form of other components of aggregate demand that might not change e.g we might see a rise in AD however, if high propensity to consume imports then AD may not actually rise as much. Also, depends upon supply side of the economy e.g firms may respond to rising demand and actually invest more and they might have subsidies from the government and depends if the Government introduce supply side policies or not. Sorry, someone please help me I don't know if i'm right or totally wrong

Yeah I think you're right

But I think you could also argue that automatic stabilisers are in play which reduce the effect of multipliers etc...

Other than that I think what you mentioned should be fine

Thank you !!
What do you mean by the automatic stabilisers?
Also, 4 quick questions if you know the answers I'd really appreciate it..

1) when looking at the long run philips curve, by saying a shock to demand cause then does that mean the changes to employment are PURELY demand side based and not changes due to anything else? e.g voluntary etc?

2) the definition of voluntary unemployment contradicts itself... those who are not willing to work at the going wage rate and thus, they are part of the natural rate of unemployment.. However, doesnt that mean they are not define as 'unemployed' since the definition is 'those who are willing and able to work AT the going wage rate?" or do I ignore that?

3) When looking at the UK and efforts to reduce interest rates... seen in LRPC shifting outwards.. is this because the demand for exports rises so aggregate demand rises and closes the negative output gap created in the short term causing the short term unemployment? If so, could you say that this could stimulate the accelerator effect (or is this your point about the multiplier in my evaluation?)


3)by reducing structural unemployment does that mean you're reducing the natural rate of unemployment since a component of the natural rate of unemployment is structural unemployment?

😂 sorry for bombarding the questions i'm just revising employment

Thank you !!
What do you mean by the automatic stabilisers?
Also, 4 quick questions if you know the answers I'd really appreciate it..

1) when looking at the long run philips curve, by saying a shock to demand cause then does that mean the changes to employment are PURELY demand side based and not changes due to anything else? e.g voluntary etc?

2) the definition of voluntary unemployment contradicts itself... those who are not willing to work at the going wage rate and thus, they are part of the natural rate of unemployment.. However, doesnt that mean they are not define as 'unemployed' since the definition is 'those who are willing and able to work AT the going wage rate?" or do I ignore that?

3) When looking at the UK and efforts to reduce interest rates... seen in LRPC shifting outwards.. is this because the demand for exports rises so aggregate demand rises and closes the negative output gap created in the short term causing the short term unemployment? If so, could you say that this could stimulate the accelerator effect (or is this your point about the multiplier in my evaluation?)


3)by reducing structural unemployment does that mean you're reducing the natural rate of unemployment since a component of the natural rate of unemployment is structural unemployment?

😂 sorry for bombarding the questions i'm just revising employment

Automatic stabilisers as in when the govt increases spending and uses demand side fiscal policy for example to increase AD, by increasing employment, less people are unemployed meaning less people are on benefits, and also since they now have jobs, they pay tax which reduces disposable income and thus consumption and the affect of a multiplier is slightly dampened, and vice versa if AD was falling, more people unemployed = govt spends more on benefits which injects demand... (Hope this makes sense)

I don't really get your Q1? As far as I'm aware LRPC is like the LRAS so can only shift through supply side policies

For 2, you said definition is 'those who are not willing to work at the going wage rate and thus, they are part of the natural rate of unemployment' then said the definition is 'those who are willing and able to work AT the going wage rate'??? The first one is right - idk where you got the second one from.

For 3 as I said for first one I've been told only supply side shifts LRPC so IR shouldn't have any effect on that I don't think. Reducing IR = reduced cost of borrowing, reduced reward for saving so spending and consumption rise OR/AND increased hotmoney outflows as people no longer want to save in the pound as it gives less return so D for £ falls, exchange rate falls, opposite of SPICED, AD increases which is a movement along SRPC left. Then as price inflation has gone up as a result of AD rising, workers demand higher wages (wage price spiral) and then I think SRPC shifts right and puts output back at natural levels but with higher inflation - I.e. Making AD management unsustainable.

For fourth 1 yes. The only employment increasing/reducing that has no effect on NRU is frictional as that ALWAYS exists...

:/

Anyone have some predictions as to what might be a topic or 2 that could/has to turn up? So maybe we should focus on them more. I remember last year there were some e.g. monetary policy and labour? Not sure but they both turned up.

I think the EU Referendum for Context 2 is extremely likely. The votes for the referendum are on the day of our exam.

Anyone have some predictions as to what might be a topic or 2 that could/has to turn up? So maybe we should focus on them more. I remember last year there were some e.g. monetary policy and labour? Not sure but they both turned up.

Have you seen the June 15 withdrawn paper? I'd imagine some stuff from that will pop up.

Have you seen the June 15 withdrawn paper? I'd imagine some stuff from that will pop up.

Thank you so so much!
If my definition of unemployment is odd what is your definition that's what i've been taught !!😂

-My question 1 --> I essentially meant is voluntary unemployment a supply side issues? If so, since the SRPC only shifts due to changes in demand will ONLY affect cyclical unemployment shown by shifts in SRPS or movements along it?

-Q3) Sorry I meant the SRPC sorry! So does any shift in the short run philips curve only shows the types of unemployment caused by changes in demand (even in the long run) since unless it's supply side policies the natural rate of unemployment won't adjust?

New question 1) If that's right, then if the labour market is in equilibrium and there's no cyclical unemployment then there is no reason for the Government to follow expansionary policies to reduce unemployment since there is no cyclical unemployment to reduce? Therefore if AD did rise then this would create a positive output gap and possibly stimulate the accelerator effect?

New question 2) if policies are pursued e.g expansionary fiscal policy to reduce unemployment and drive AD up then could this actually have supply side effects and would this be a point of comparison? e.g encourages more people into the workforce and actually reduces the natural rate in the long term so it's not just a short term way of reducing cyclical unemployment?

Where can I find that?

Even though they write the paper 15 months in advance?

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Not sure sorry my teacher showed it to us, I'm sure it is possible to find online somewhere though.

Yes for Econ 3 (Micro) - they're part of the Market Failure topic along with stuff like Tragedy of the Commons and Coase Theorem

Also lol @ the fact that the paper is on the same day as the referendum - couldn't be a more relevant date

What up economists? Been thrown off any planes lately while revising?


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What up economists? Been thrown off any planes lately while revising?


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Unit 3 & 4 June 2015 Paper????