2024 app points

Question 1

Reasons for sharp fall in inflation in uk economy

Answer 1

1) 23% year on year cut in energy price cap for typical gas and lec bill from £2500 Oct 2022 to £1923 Oct 2023
2) food price inflation was lowest since 2021 after drop in annual rate of increase to 10.1% in Oct, down a recent high of 19.2% in March 23 (highest annual rate for more than 45 years)

This is disinflation mainly caused by external causes as world energy and food prices fall. Also int rates softened AD

Question 2

What happened to house prices in late 2023 and what are 3 consequences

Answer 2

• first house price fall for 11 years (mostly due to rising mortgage interest rate)

1) property value fall= negative wealth affect so consumption falls and AD growth slow
2) slowdown in housing market = reduced demand in new construction and real estate having a cascading effect on other industries like construction material, estate agents, home improvements
3) reduced property value = lower stamp duty revenue. Also direct tax revenue fall as employment in construction declines and housing businesses make less profit to be taxed

Question 3

State of housing market in late 2023

Answer 3

• Stability house prices
• probs bc average monthly mortgage payment are £250 higher than 2 years ago so housing less affordable
• ## house prices are falling whilst private sector rents are climbing fast

Question 4

Describe total long term net migration into uk over last decade

Answer 4

• most stuck at 300 000 or below for 2012-2019, fell in 2020 to below 100 000, since then sharply risen to above 700 000 in 2022 and 672000 in 2023
  -However since then, has been rising sharply and peaked in 2023 with 1.2million people, vast majority of which are non-eu.
• many are students and people looking to enter health and social care.
• Net migration was 672000 in 2023, historic highs
• emigration in 2023 was 508000

Question 5

Data on uk work visas

Answer 5

• work visas into uk saw an increase in 208295 tallying up to 538887 (up 63%)
• study visas grew by 165968

Question 6

Evaluate recent net migration high in uk

Answer 6

• migration data is very volatile and hard to predict
• high net inward migration is mix of factors
• including humanitarian schemes for Ukrainians and Hongkongers plus increases in intl students and work visas
• uk has significant labour shortages so long term work visa number will remain high

Question 7

Uk sectors with skill shortages

Answer 7

Health and social care: high demand for workers due to ageing pop.
IT and digital: skills shortages in cyber security, data analysis and software development (lack of graduates and young people entering industry with right skills)
Manufacturing: struggling to get younger workers due to lack of apprenticeships and vocational training in these areas
Transport and logistics

Question 8

Consequences of high net inwards migration

Answer 8

1) econ growth: migrants contribute to economic dynamism and innovation and entrepreneurship and grater workforce increases LRAS AND AD
2) infrastructure challenges: strain on transport, housing education and healthcare
3) skill shortages filled

Question 9

Interest rates right now

Answer 9

• 5.25%. Likely to stay here even if inflation is falling
• mortgage IR suddenly rising so house prices are now falling for first time in 11years

Question 10

Growth in 2023

Answer 10

• uk slipped into recession at end of 2023 with real gdp growth at 0.1% in 2023
• growth is very sluggish post pandemic and economy grown 2% in last four years

Question 11

Employment in 2023

Answer 11

• unemployment was held at 5.25% in pandemic due to furlough scheme but after that it fell
• only now rising to 4.2% in Q3 2023
• labour inactivity has risen rapidly post pandemic reachin 2600 in 2023

Question 12

Budget deficit and gov debt in 2023

Answer 12

• gov boring as % of GDP was 15% in 2020-21 but now 2022-2023 it is 3.3%
• since economy isn’t growing, gov debt as a % of borrowing remains high at just below 100%, debt is 2.6 tn GBP
• debt interest paid by gov is very high now to 4% of gdp

Question 13

Tax burden in 2023

Answer 13

Tax burden hit a 70 year high due to slow growth and rising taxes, partly to do with fiscal drag. Jeremy hunt frozen tax band allowance till 2028 as incomes rise with inflation people are dragged into higher tax bands but gov will get loads of tax revenue ( something like an extra 44.6 bc pounds in 2028)

Question 14

Exchange rates

Answer 14

Pounds relatively stable against euro and the dollar and the pounds held up stronger due to high IR

Question 15

Growth prospects in Kenya

Answer 15

• Kenyan flower industry
• Africa’s top flower exported was Kenya again this year (2023)
• they earned US$900mn on 200k tonnes of cut flowers and ranking the worlds 4th biggest flower exporter
• 5th in the world is neighbouring Ethiopia
• is this sustainable?

Question 16

How does Kenya aim to fill the investment gap?

Answer 16

• Remittances incomes
• Kenyans sent a record US $4.17 billion back home in 2023
• with foreign investors leaving Nairobi stock exchange (capital flight), gov wants remittances to fill the inv gap

Question 17

Growth prospect for whole of Africa

Answer 17

Solar energy - very sunny countries can make us of solar energy with enough investment so they are no longer reliant on oil imports
- Botswana has 300 days of clear skies a year and has decided to double the size of its solar power array to produce 120MW up from 60MW
- plant has 25 year contract to sell electricity to national grid

Question 18

what

Question 19

Evaluate the uk unemployment statistic of 4.2%

Answer 19

• the inactive missed
• the underemployment not counted
• existence of age, gender, ethnic and regional disparities
• hard for firms to find workers
• inflation conflict (higher employment = high inflation, ref j curve effect)

Question 20

What are the UK’s main causes of current account deficit

Answer 20

Supply side driven (therefore more problematic to resolve)
- awful productivity (due to chronic underinvestment esp due to sever austerity in 2010 deterring public investment and brexit deterring private inv)
- high unit labour costs
- poor investment
- from demand side we also a large volume of imports

Question 21

Uk Gini coefficient

Answer 21

0.357

Question 22

Why are cocoa prices surging

Answer 22

• largest cocoa supply deficit in more than 60 years and we can see effects of this at end of years or early 2025. Prices already rose 186% over last 12 months up (March 2024)
• supply disruptions in the Ivory Coast and Ghana (these are 60% of global cocoa production)
• crops hit with black pod disease and swollen shoot virus
• El Niño weather had led very wet end to last year but now extremely dry hot conditions so lower cocoa yields due to climate change
• panic buying as commercial buyers hear of a deficit and rush to get cocoa that is still available.
• shrinkflation will occur where choc companies charge same price but shrink size of bars

Question 23

Structural issues in cocoa industry

Answer 23

• producers in Ghana and Ivory Coast have kept prices lower but this means cash strapped farms cannot invest in their cocoa plantations. Hence most haven’t planted new trees since early 2000s, cannot afford fertiliser or pesticides

Question 24

what are rental prices rising so rapidly

Answer 24

• uk rental costs were rising at a record 9% pace in March 2024
• mainly because; landlords have withdrawn properties from the market due to higher borrowing costs so shortage of rental properties or landlords pass on cost of higher mortgage payments to tenants
• also landlords face harsh taxes and costly regulations - gov failure and this is making rental properties unaffordable
• rise in rents was the most in London 10.6% (£2035pcm)

Question 25

Arguments favouring rent control for housing

Answer 25

• need to reduce the excess profits of landlords who may explot those in greatest need; source of inequality and more regressive for LIC households
• high private sector rents impede the geographical mobility of labour and therefore keeps structural unemployment higher
• high rents reduces people’s effective disposable incomes and these increases demand for state welfare benefits

Question 26

Evaluate argument for rent controls

Answer 26

• capping rent = landlords withdrawing investment so diminished stock of private sector rented housing as profit motive is limited
• landlords cut back in maintenance spending so quality of rental properties deteriorate and consumers get less value for money (risk of damp and danger from poorly maintained property) so that creates external costs
• potential black market rent as people are so desperate to find a rental property and a maximum price on rent creates excess demand (unintended consequences)
• alternatives could be increased spending on social house building and tax relief when building affordable homes on brownfield sites. Zero VAT on building materials to incentivise affordable house building

Question 27

What’s going on with Japan’s interest rates

Answer 27

• first time in 8yrs since 2007, Japan raise MP interest rates so they are no longer negative
• rates gone from -0.1% to between 0 and 0.1%
• negative interest rates to battle deflation and very stagnant economy
• post world war japan had economic miracle: 1960’s to 1970s was lots of growth
• boom ended when interest rates went up to cool inflation, speculation and housing market but this halted economy meaning inflation and wage growth didn’t increase and so interest rates were lowered

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Question 28

Effects of BOJ interest rates being raised to 0.1%

Answer 28

• mortgages get more expensive and interest payment on gov debt (3trillion) will increase and for companies
• yen gets stronger and exports get hit
• investing in Japan is more lucrative now
• cheaper food and fuel imports

Question 29

Effects of Chinese economy slowdown

Answer 29

• consumer prices fallen by 0.8% (fastest rate in 15 years) so economy entering deflation mainly due to falling food prices
• China is a major exporter and is Britain’s large import partner so deflation can ripple through world economy so cheaper imports
• office machinery and tech gets cheaper
• but this doesn’t-change Uk inflation as it caused by food and energy prices over here
• deflation means Chinese consumers delay spending, worrying for uk exports
• china’s growth is a third of world growth so global growth will decline for 2024
• big exporters like aus Brazil and African countries suffer less demand as Chinese save
• Chinese estimated to has invested more than a trillion in infra projects like belt and road in the last ten years

Question 30

Problems in china right now

Answer 30

• slow growth
• deflation
• high youth unemployment
• property market crisis - chair on of evergrande (china’s heavily indebted ($300bn) real estate developer) on verge of collapse with its shares losing 99% of value in past 3 years
  + people who bought property with evergrande lose deposit with no property potentially
  + banks and other lenders may be forced to lend less = credit crunch hence growth even.more limited and companies may close
  + too big to fail? Beijing may bail them out as this collapse could trigger financial crisis as property sector is a quarter of Chinese growth