6EC02 - AS Economics - the last 8

For your last 8 lessons come prepared with revision notes/cards per topic. In each lesson we will go over tricky concepts, model exam answers and test you on an exam question, which you will get feedback in the lesson or next lesson. For each lesson we will look at exam skills, impact on macro-economic performance and what shifts AS/AD.So make sure you come prepared.

Homework:

Lesson 1  - Monetary Policy
Study the following tutor2u link and bring your revision notes/cards to your next lesson to be able to answer the following questions:

link: http://www.tutor2u.net/blog/index.php/economics/comments/unit-2-macro-5-years-of-low-interest-rates

Define Monetary policy in the UK? Monthly setting of the base rate of interest by the Bank of England - controlling the interest rates set in the market that encourage/discourage Consumption, Savings and Investment. A demand side policy that shifts AD.

Five years of low interest rates - who are the winners, who are the losers?
Winners - the UK Economy - Growth, Deflation avoided, cheaper exports due to weaker pound
Winners 2 - Borrowers - Government Debt interest low, home owners mortgage interest repayments low
Losers 1 - savers - real rate of interest on an ISA -0.5%
Losers 2 - Pensioners - interest income from life-long savings low
http://www.ft.com/cms/s/0/c28f4be2-a44b-11e3-9cb0-00144feab7de.html#axzz2wUbBMlZZ

What is the impact on the value of the pound of lower interest rates in the UK compared to other countries?
Lower Interest Rates Weaker pound, assuming interest rates are higher elsewhere in the world.

What would be a monetary Demand Side shock and how would it affect C+I+G+X-M?
A rise in the base rate of interest may see a collapse in consumption and investment and consumer and business confidence falls, also the pound may soar resulting in UK export prices becoming uncompetitive and export revenues falling.

Lesson 2 - Fiscal Policy
Follow the Budget reporting on Wednesday 19th http://www.bbc.co.uk/news/uk-politics-26632862
Define Fiscal Policy? is the use of government expenditure and tax revenue (2 marks), as planned each year in the budget (2 mark), in changing the level of Aggregate Demand (2 mark). It is a demand side policy. (2 mark
Define Austerity Budget? is cuts in government spending (2 marks) and/or increases in taxes (2 marks) to reduce the budget deficit (2 marks).
 What would a green Budget look like? More government spending on renewable energy, energy efficiency, trains (HS2) etc Increases in taxes on energy consumption or petrol.
 What is the multiplier effect? http://www.youtube.com/watch?v=0CjNlyiDAno The knock on effect of a change in an injection (I, G, X) or leakage (S, T, M) results in a larger change in National Income (Growth). Someone's spending is someone else's income. You can also use the foruma 1/1-mpc but this is not essential for the exam.
What would be a fiscal Demand Side shock and how would it affect C+I+G+X-M? Large change in Income Tax will result in a large increase in consumption e.g. 1988 Top rate of Income Tax cut from 60% to 40%.

Remaining lessons

1. Supply Side Policies and Shocks
2. Trade Deficits - impact of weaker pound (exchange rate policy); costs and benefits.
3. Inflation - effects, price level, index numbers, CPI, RPI, costs and benefits, trade offs, Phillips Curve
4. Unemployment - ILO, LFS, costs, benefits, trade offs
5. Growth - Real/nominal, Output gap, circular flow,Standard of Living, HDI, other measures, benefits and costs of growth - inequality and the environment, inflation and trade deficits.

Key exam lesson content
ATQ
use numbers/data - apply
timings
practice
Evaluate
accurate diagrams
30 marks