paper 3 25 markers Flashcards
(20 cards)
Evaluate the possible micro and macroeconomic effects on the UK economy of a decision by the government to encourage fracking.
specimen
Micro effects
1. price of gas to consumers- impact on consumer surplus
2. price of gas to producers- impact on producers’ surplus
3. implication for producers of other forms of energy (lose market share and demand?)
4. external costs- on environment and water supply
Macro effects
1. on investment- multiplier effect on GDP so promoting economic growth
2. on employment (increase employment)
3. BoP current account (increase competitiveness, less imports)
4. rate of inflation may fall from lower energy prices
Evaluation:
1. impact on price of energy may be less significant than in USA
2. impact on other forms of energy
3. depend on how much gas is obtained from fracking
4. diffficult to forecast magnitude of external costs or place monetary value
5. impact on macroeconomic variables dependent on amount of gas found, price it sells at and changes in price of other types of energy
Evaluate the possible microeconomic and macroeconomic effects on the global economy of lower energy prices.
specimen
Micro:
1. impact on revenues and profits of energy companies
2. impact on investment decision by firms in energy markets
3. impact on wages of workers in energy industries
4. imact on consumer real incomes and on demand for other goods and services (reduce because CoP reduce)
Macro:
1. lower cost of production
2. lower global rates of inflation (AD/ AS)
3. impact on global growth rates
4. impact on BoP on current accoutn of different countries
5. increase in CO2 emmissions (impact on different counteis)
6. impact on consumers and producers of main countries supplying energy
Eval:
1. impact on different industeis depend on their energy costs as a proportion of total costs
2. impact on households will depend on cost of energy in household budgets
3. impact on inflation rates and growth depend on elasticity of AD and AS curves
4. depend if net importer or net exporter of energy
5. external costs depend on how different energy sources are affected
6. depend on consumer confidence
Evaluate likely microeconomic and macroeconomic effects of the imposition of ‘price controls’.
specimen
Micro
diagram showing max prices
1. **contraction **in supply and extension of domestic demand
2. **shortages **of products
3. need for rationing
4. greater **price stability **for producers
5. implications for resource allocation- producers switch to resources to production of products with no price control
Macro
1. falling export revenues from beef sales
2. negative impact on balance of trade
3. cause fall in rate of economic growth
4. negative implications on economic development
5. fall in rate of inflation
6. price controls act as incentive for producers to diversify and develop manufacturing and tertiary industries
Eval:
1. impact of price controls, what magnitude
2. how long is the price control going to last
3. impact on balance of trade is minimal as** increase export of other things**
4. rate of inflation may be limited to short term (once removed, inflation increase significantly)
Evaluate the likely microeconomic and macroeconomic effects of the 23% devaluation of the Argentine peso.
specimen
Micro:
1. primary producers- export revenues may fall since demand for many primary products is price inelastic
2. increase in costs for firms reliant imported raw materials
3. **increase in competitiveness **for Argentine exporters of manufactured goods
Macro:
1. increase competitiveness of Argentine G&S may lead to** improvement in current account of BoP**
2. increase rate of economic growth
3. increase in employment (in exporting industries)
4. cost push inflation resulting from increased costs of impported goods
5. increase real burden of foreign debt
Eval:
1. impact on individual argentine producers depend on their reliance on imports and exports
2. demand for some products may not be affected as demand is increasing raidly somewhere lese
3. inflation is very high-> lose competitive advantage
4. depend on Marshall-Lerner condition
5. SR vs LR on current account-> J curve
Evaluate the microeconomic and macroeconomic effects of policies that could be used to stimulate economic growth and development in Chile.
2017
Micro:
1. expansionary fiscal policy- cutting income tax increasing real wages
2. monetary policy- cutting interest rates reduce costs of borrowing for individuals and firms
3. supply side policies- privatisation, free trade
4. growth and development strategies
Macro:
1. cutting interest rates cause peso to further decrease in value (inflation or increase value of exports leading to current account improving)
2. privitisation or other supply side policies can increase international competitiveness
Eval:
1. expansionary fiscal policy involve improvement in redistribution of income
2. objective conflict- cutting interest rate increase inflation
3. policies might conflict
Evaluate the microeconomic and macroeconomic impact on Chile’s economy of changes in the level of investment.
2017
increase in I
Micro:
1. effects on workers- higher incomes, more jobs
2. effect on firms- increase in productivity
3. increase demand as consumer and business confidence improves
4. improved quality of life as a result of research into development of products
Macro:
1. increase in AD, multiplier effects, increasing real GDP
2. increase in AS, increasing capacity- investment in education
3. inflation(expansionary macro policies)
4. balance of payments- inward FDI- improvement on financial account and long term impact on current account
Eval:
1. investment in capital may decrease employment
2. investment in human capital has hard to measure effectiveness
3. data points to both increases and decreases in investment
4. depends in investment is internal or FDI
Evaluate the likely microeconomic and macroeconomic influences on the UK’s international competitiveness.
2017
Micro:
1. productivity- physical and human
2. unit labour costs- in terms of relatice wages
3. market structure- low level of competition between firms
4. effectiveness of competition policy
5. non price factors- quality
6. labour market factors- trade unions, NMW, labour market regulation
7. taxes and subsides on firms
8. regulation- green taxes and other environmental policies
Macro:
1. physical and human capital
2. level of inflation
3. level of indirect taxation, including tax on labour, corporation tax
4. real exchange rates
5. infrastructure
6. supply side policies, including protectionism
7. comparative advantage
8. membership of trading blocs
Eval:
1. degree to which the factor influences competitiveness
2. degree to which wages influence competitiveness
3. use of other countries in data- conflicting evidence
4. difficulties in measuring productivity or competitiveness
5. different labour market have different demand and elasticities
6. example of germany very competitive but has high wages
7. relative significance of price vs non price factors
8. problems of being competitive in non tradables (eg services)
Evaluate the microeconomic and macroeconomic effects of a government policy of cutting public expenditure rather than raising taxes as a means of reducing a fiscal deficit.
2017
Consider both G and T
Micro:
1. people facing reduced benefits (non- working recipients)
2. people facing reduced work related benefits
3. firms with increased supply of labour, but higher costs of labour
4. firms’ incentives- changes in coporation tax
5. effects on sectors of economy eg schools
6. supply of labour increase (less benefits)
Macro:
1. lower inflation
2. lower nominal GDP
3. chnage in employment/ incentives to work
4. increased income inequality
5. reduced quality of public services in general
6. falls in productivity and increased cost push effects as result of cuts in edu or failing infrastructure
7. Laffer cuve
Eval:
1. impact will depend on which areas of govt spending cut and what tax raised
2. depends on multiplier effects
3. does deficit need to be cut? national debt reducing even with fiscal deficit
4. timing of cut
5. govt failure
6. consideration of size of public sector
Evaluate the microconomic and macroeconomic effects of increased governmen spending on education to promote healthy eating
2019
Micro:
1. increase demand for healthy foods
2. increase prices of healthy foods and decrease prices of HFSS foods
3. positive externalities in consumption are internalised (draw externalities diagram)
4. impact on firms which may make unhealthy products (increase costs as they used healthier ingredients with higher costs)
5. increased profits for healthy food producers (cost and revenue diagram)
6. workforce is healthier, workers are more productive (increase marginal products)
7. opportunity cost of spenidng on education
Macro:
1. increase in G-> increase in price level and output-> multiplier effects (shift out AD)
2. healthier workforce shifts out the LRAS-> lower prices and higher output
3. fiscal implications- crowding out, effect on balancing budget
Eval:
1. opp costs- expansionary fiscal policies not necessarily happening (cut in expendiure elsewhere)
2. trade off between objectives-> increase spening cause inflation etc
3. question** is education effective** or other policies needed (tax, banning ads)
4. education may be counter productive- govt failure etc
Evaluate the likely microeconomic and macroeconomic effects of imposing a tax on HFSS foods
2019
Micro:
1. rational economic implies people will change consumption patterns (change away from the taxed foods)
2. tax diagram
3. XED- rise in price cause rise in demand for healthy food
4. welfare changes- loss of consumer and produce surplus, deadweight welfare loss (externalities)
5. impact on firms (loss in profits on HFSS as demand falls, increase profits on healthier foods)
6. impact on labour market (healthier workers, reduce employment for HFSS manufactureres and increase employment for healthy food firms)
Macro:
1. redistribution- indirect taxes are regressive, disproportionately affect elderly and poor
2. cost push inflation- rise in prices, move up in AS
3. effects on incomes/ net exports- linked to fall in AD (push up food prices in year where real wages fell)
4. govt gain revenue which can be used elseweher in economy
Eval:
1. depends if firm respond by cutting prices
2. tax makes people** buy other unhealthy food** (substitute cheaper more unhealthy lower quality alternatives)
3. tax is not effcient deterrent to obesity, inelastic (did not change shopping habits)
4. depends on magnitute of tax (proportion of income may be low)
5. PED will determine incidence of tax (inelastic, more consumer; elastic, more producer)
6. intervention mean free markets work less well- theory of unintended consequences
7. other unintended consequences (counterfeit, smuggling)
8. losing tax revenue as people buy from other countries
Evaluate the microeconomic and macroeconomic factors, apart from access to credit and banking, influencing growth and development in Mozambique.
2019
Micro:
1. labour force (skills, health)
2. small firms with low levels of capital
3. low levels of personal savings/ high levels of personal debt (harrod domar)
4. primar product dependency
5. volatility of commodity prices
6. debt
7. lack of infrastrucutre/ other capital
8. absence of property rights
9. non- economic factors (natural disasters, social problems)
10. joint ventures with global companies
Macro
1. trade liberalisation- tariffs and trade agreements
2. role of FDI- tuna fleet
3. government policy failure- weak expansion in fiscal policy, high interest rates, lack of subsides, privatisation, interventionist strategies
4. actions of other internation institutions- IMF or NGOs
5. macroeconomic stability- rate of inflation, economic growht, exchange rate
Eval:
1. degree to which factors are inevitable
2. signs of improvements
3. some factors are temporary (eg. fall in commodity prices and droughts)
Evaluate the likely microeconomic and macroeconomci effects of relatively high inflation rates in many african countries
2019
Micro:
1. on people with debt (better off) and savings (worse off)
2. people with fixed incomes- falling real incomes
3. firms’ profits- face rising cost, if cannot raise price, lower profits or falling sales as consumers delay purchases)
4. firms’ costs if they face rises in IR as inflation is high- lower profits
5. opp costs- govts spending if cost of servicing debt falls
6. effect on labour market- people might work more hours to cover increased cost of living
Macro
1. international competitiveness and bop- less exports more imports
2. distribution of income and wealth (inequality)
3. confidence and investment in financial markets
4. policy respnses- rise in interst rates and effects on AD
5. shift in AS and or AD
6. high inflation deter investment and FDI
Evaluation
1. whether wages rise in line with inflation
2. degree of inflation and policy and international responses
3. PED of countries buying African exports
4. PED of importing countries as imports become relatively cheap
5. are african countries trading with each other (effects cancel out)
6. whether asset prices rise as to redistributive impact
7. depends on whether this is long term inflation problem (related to commodity price rise- short term)
8. figures are only for a moth
9. depend on type of inflation- cost push or demand pull
10. impact on** exchange rates**- higher inflation may erode the value of currency- might cancel out the impact on competitiveness
Evaluate the likely microeconomic and macroeconomic effects of a rise in interest rates in Turkey.
2020
Micro:
1. fixed costs to firm will rise (cause shut down/ loss of competitiveness)
2. fall in consumer demand as consumption expenditure falls- likely reduction in AR for normal goods (borrow less)
3. other costs to consumers/ firms/ a government- increased burden of debt and loan repayments/ servicing costs
4. fall in investments by firms- reducing dynamic efficiency
5. impact on turkish housing market
Macro:
1. link between higher interest rates,** lower investment and consumption**, reduce AD (diagram!!)
2. rise in value of lira- worsening of current account of bop- effect on other countries
3. redistribution of income- borrowers to savers/ lenders, from asset holder to renters
4. cost of financing public deficit/ debt (opp costs) may mean less govt spending elsewhere- limited ability to spend on education
Eval:
1. interest rate might not be most significant cost for firms
2. contractionary monetary policy already very tight- depends on the interest rates in other markets
3. inflation has peaked and there are sign that it will fall so the rise in interst rates is not necessary
4. trade off between objectives or prioritisation- lower inflation at cost of higher unemployment
5. depends on interest rates in other markets- relative interest rates to other countries
6. private sector is resillient- less likely to shut down
7. impact on housing market will depend on wheter people own homes and are mortgage or they rent
8. magnitude the interest change
Evaluate the microeconomic and macroeconomic impact on large infrastructure projets such as the building of third airport in Istanbul
2020
Micro
1. wages higher
2. improved infrastrucutre affect firms (fall of firm fixed or variable costs)
3. investment seen to boost business confidence, lead to further investment and spending within firms
4. external benefits/ external costs- given size, number of runways and amount of traffic
5. external economies of scale
6. impact on costs and revenue if the building occurs in private sector
Macro
1. redistribution of income
2. outward shift of AF (I or G) into circular flow with multiplier effects (employment and incomes rising)
3. AS shifts right with a movement in capacity of productive economy shown (Kenesian or Classical AS)- increase in productive potential
4. fiscal loosening- effects of increased budget deficit if funded without increase in tax
5. effects of a rise in tax- if linked to govt decision to raise tax to fund the projects
Eval:
1. opp cost of spending on infrastructure- eg schools
2. crowding out- financial or resource
3. might be a white elephant project (cost of upkeep> actual usefullness)
4. depends on relations with EU/ other countries as to whether the airport will reach full capacity
5. depends on the size of the multiplier
6. depends on the state of the financial sector
7. true costs not accounted- externalities ignored
8. large projects require a lot of coordination and getting behind schedule putting lives at risk
9. difficulty in placing value on external benefits and costs associated withe project
Evaluate possible microeconomic and macroeconomic policies which could be used to improve UK competitiveness.
2020
Micro:
1. labour force policies (changing NMW affecting ULC)
2. increased level capital by making investment more profitable/ subsidy
3. infrastructure spending- crossrail
4. investment in education/ skills/ cutting uni fees (worker)
5. joint ventures with global companies
Macro:
1. trade liberalisation- may refer to tariffs or trade afreements to improve price competitiveness
2. tax and benefit changes- corporation tax
3. government policy improvements- weak expansion in fiscal policy, cut interest rates subsidies, privatisation
4. actions of other institutions- eg banks, schools
5. control of price level- stop QE
Eval:
1. degree to which policies might be a success
2. depends on other countries (relative competitiveness issue)
3. depends on value of currency which cannot be directly controlled in UK
4. depends on relationship with EU after Brexit
5. opportunity costs of funds
6. government failure- lack info to know where to focus funds
Evaluate the microeconomic and macroeconomic effects of a decline in the literacy and numeracy skills of country’s young workers.
2020
Micro
1. loss of human capital- lost inomes, consumer welfare
2. firms may have unfilled vancancies- effects on costs
3. falling income in uk mean reduced sales
4. skill shortages may create a need for employent of migrant workers
5. extra costs associated with training staff to up skill them
Macro
1. shift in SRAS or LRAS might be drawn as costs of production rise, productivity worsens, capacity reduces
2. effects of immigration to fill gaps in labour market
3. effects on current account as UK economy becoe uncompetitive
4. falling tax revenues and increased G- fiscal implications
Eval:
1. effects of brexit may mean it;s harder to fill vacancies for firms using skilled EU labour
2. data may be misleading- difficult to measure human capital
3. commet on priority literacy/ numeracy is vital to long term viability of workforce. Should funding increase for education
4. there will always be a demand for low skilled workers
5. some evidence suggest UK young people better educated as more reforms in exams
6. some with poor literacy and numeracy have been highly successful entrepreneurs
Evaluate the microeconomic and macroeconomic effecs of a depreciation of the pound. Refer to restaurants or other food delivery services in your anser.
2022
Micro:
1. higher cost of imports of food- higher cop for sector
2. lower profits for firms in hospitality
3. higher prices of food for consumers
4. consumers have lower standards of living if on fixed incomes
5. falling real income so demand for restaurant meals and food delivery services shift left/ reduce
6. workers have higher incomes if working in exporting girms in other industries- so might use more delivery services
7. restaurants might begin to use more locally produced food
Macro
1. capital in flows- benefits toMNCs such as just eat for investment in the US using other currencies
2. **cost push inflation **(SRAS shifts in
3. more injections and fewer withdrawals leading to the rise in AD and multiplier effect
4. increase employment
5. incentive to use transfer pricing
6. UK tourism might be boosted by depreciation which would improve local restaurants
Eval
1. depends on the nature of the restaurant- some use locally sourced ingredients
2. pound recovered signigicantly since 2016
3. food costs are a small cost relative to other costs (rent and delivery)
4. some restaurants are specialised in UK food so cost effect very low
5. other factos more important (spending in pandemic)
6. relative depreciation
7. impact on tourism small relative to increase production of food
8. regional differences
9. marshall lerner
10. j- curve
Evaluate the microeconomic and macroeconomic effects of significant increases in minimum wage. Refer to restaurants or other food delivery services in your answer.
2022
Micro:
1. rise in wages will benefit very low paaid workers- NMW diagram
2. effect on cost to firms eg reduced profit margins
3. excess supply of hospitality workers
4. effect on prices consumer surplus falls, output falls, price increases
5. impact on quantity of labour demanded (reduce jobs available)
6. impact on productivity
7. inefficient resource allocation due to distortion of price mechanism
Macro:
1. income equlaity improvements
2. prices rise- inflationary effects
3. reduction in relative poverty
4. AD: increase in consumption as incomes increase, fall in investment as profits fall
5. SRAS: cost push
6. LRAS: investment falls, then LRAS shifts in
7. reduced employment
8. higher income tax revenue
9. lower unemployment related benefits
Eval:
1. depends how much wage costs proportion of overal costs
2. impact on real output
3. effect on workforce of employment regulation- depends on elasticity of demand for labour
4. depends on PED of food delivery firm market as a whole
5. consumers also have increased wages so profits wont fall
6. LRAS rise as economically inactive workers join labour force
7. higher tax revenue
8. productivity/ motivation
Evaluate the microeconomic and macroeconomic effects of decreasing interest rates in Kenya or another developing country of your choice.
2022
Micro:
1. lower costs to business, lower fixed costs and increase competitiveness
2. greater credit for businesses to expand and invest in R&D and dynamic efficiency
3. higher consumer demand as consumption increases- greater consumer surplus
4. housing market
5. labour market effects from derived demand
Macro:
1. lower saving (C and I increase)-> AD rises and multiplier effects
2. lower exchange rates- improvement in current account
3. lower cost of financing public deficit/ debt may mean greater govt spenidng elsewhere
4. grow in LRAS if investment continues
Eval:
1. interest rate is not only cost for firms- depend how low
2. impact on real output depends on level of spare capacity/ elasticty
3. central bank rate is not rate individuals can access
4. degree to which factors might be success
5. relative IR to other countries
6. magnitude of change
Evaluate the microeconomic and macroeconomic strategies that could be used to promote development in Kenya, or another developing country of your choice.
Micro:
1. state provision or tax relief to encourage increased job opportunities
2. other attempts to encourage private production- airport improvements to benefit firms
3. methods to improve value of workers output- vocational trainign etc
4. disease prevention and cures
5. infrastructure
6. skills
7. technology
8. govt intervention- min wage and subsides
Macro:
1. trade liberalisation
2. privitisation
3. information and health assitance to lower birth rate
4. development of hman capital- better healthcare, education and skills
5. increased FDI by shoring up capital markets
6. aid
7. debt relief
8. microfinance
Eval:
1. limit to what strategies can influence
2. global health crisis affect poor countries more profoundly
3. comparison or contrast with another developing country- how population growth can be limited
