Essay Plans

Question 1

Policies to reduce a Current Account deficit

Answer 1

Expenditure-reduction and expenditure-switching

Caused by high demand for imports: tighten fiscal and monetary policy BUT may conflict with other objectives e.g. growth; depends on multiplier and confidence

Caused by price: protectionism BUT retaliation; WTO conflicts; imported inflation; X-inefficiency

Caused by strong pound: depreciation BUT Marshall-Lerner; J curve; imported inflation; floating rate; retaliation

Can use supply-side policies BUT time lag; no guarantee of success; expensive

Question 2

Discuss the impact of globalisation

Answer 2

(1) Economies of scale
Production is increasingly specialised. Globalisation enables goods to be produced in different parts of the world. This greater specialisation enables lower average costs and lower prices for consumers.

(2) Increased mobility of labour and capital
Increased labour migration gives advantages to both workers and recipient countries. If a country experiences high unemployment, there are increased opportunities to look for work elsewhere. This process of labour migration also helps reduce geographical inequality. This has been quite effective in the EU, with many Eastern European workers migrating west.

(3) Increased competiton from domestic producers
Domestic monopolies used to be protected by a lack of competition. However, globalisation means that firms face greater competition from foreign firms.

(4)

Question 3

Does a trade deficit matter?

Answer 3

(1) No / yes
- A trade deficit may be caused by a rapid growth, which leads to higher consumer spendingon imports

(2) No
- There are more pressing concerns than a trade deficit such as unemployement and inflation

(3) Yes
- A trade deficit could suggest that a country is uncompetitive as we could not export as much as we import

Question 4

Discuss the importance of free trade through the WTO

Answer 4

(1) increased competition
- Firms now face competiton from abroad so would be much more incentivised to cut cost and become effcient

(2) law of comparative advantage
- Countries will make goods they are better at producing which help with the basic economic problem

(3) lower prices due to greater economies of scale`

Question 5

Uk economy to adopt a single eurpean currency

Answer 5

(1)Price transparency. In the Euro, it would be easier to compare prices between the UK and other Eurozone economies

(2)