A2 Revision Plan

A2 ECONOMICS

FINAL REVISION

Re-create your revision plan: www.getrevising.co.uk

Think PPF: Invest in your revision, you may have an opportunity cost  of less time consuming TV, video games now but in the long run, with better results, you will be able to consume more.

Resources

·         Use the following Revision tasks to add to your revision plan – remember to treat as small bite-size sections.

·         Traffic lighted specification – prioritise study of red sections, seek advice and guidance before Holidays and on Revision day.

·         You should by now have your revision notes well organised into these topic areas, with key term cards, mind maps, condensed notes?

·         Revise key terms – know your definitions (2 DEF).

·         Practice your key diagrams – how can you illustrate current issues: QE or dominant forms advertising.

·         If stuck on a topic make use of the Cherwell Economics You Tube Channel. http://www.youtube.com/user/CherwellEconomics/featured

·         Attend the Top Up Revision Sessions – see below for dates.

·         .

Websites   Keep looking at www.grayseconomics.blogspot.com you must watch the 30 min video on UK. As well as  Tutor2u.net    Economicshelp.org    

Edexcel Exam papers Keep practicing exam questions.  Practice multiple choice and essays in timed conditions, alternatively do essay plans and email over to me – but please ensure you practice a few full responses and submit for marking. Use the Mark Scheme and Examiners Report to go over your responses and email practice questions or queries to:

tgray@cherwell.oxon.sch.uk . I expect to see a regular stream of attempted parts to questions. Having said that I am not contactable on the following dates due to exam commitments: 23-24 May and May 29 – June 3^rd. In addition I have Year 10 lessons Week 1, day, period:  1Mon2, 1Tue4, 1Thur3, 2Mon2, 2Tues5.

Re-jig revision tasks to suit your priorities – take on more challenging questions first.

	Revision task
Saturday 23 May	6EC04 Reading for revision Study UK Economy webinar as discussed in lessons and on www.grayseconomics.blogspot.com 6EC03 Practice diagrams – use the checklist Skills focus Plan/Answer June 2014 Essay question on UK Economy (Developed/Global Economy Question) Answer June 2013 Multiple choice under timed conditions
Sunday 24 May	6EC04 Reading for revision Study Developing countries case study - as discussed in lessons 6EC03 Practice diagrams – use the checklist Skills focus Plan/Answer June 2014 Essay question on developing economies (Developing/Global Economy Question) Answer June 2012 Multiple choice under timed conditions
Monday 25 May	6Ec04 Reading for revision Study Textbook and revision guide on Globalisation and practice using comparative advantage theory. Skills focus Answer Data question on trade liberalisation and globalisation.
Tuesday 26 May	6EC03 Reading for revision Study Textbook and revision guide on Monopoly abuse, use of economies of scale versus higher prices and lack of choice. Discuss impact on efficiency, consumer and producer surplus. Price discrimination. Re-do notes/key term cards on Monopoly. Skills focus Answer data question on Monopoly abuse
Wednesday 27 May	6EC04 Reading for revision Study Textbook and revision guide on Protectionism, practice using the tariff diagram in your responses. Remember trading blocs and WTO. Skills focus Answer Essay: Discuss impact of protectionism in the global economy on countries  Balance of Payments
Thursday 28 May	6Ec03 Reading for revision Study use of government interventions and government failure – weighing up the size of market failure versus government failure. Recall – AS tricky concepts that may appear in A2 Public Goods, Income Elasticity of Demand, PES, PED, XED. Skills focus Answer data/multiple choice -  question explain why a company may shut down
Friday 29 May	6Ec04 Reading for revision Study Textbook and revision guide on Exchange Rates, practice using the Marshall Lerner condition and J curve effect in your answers. Skills focus Answer Essays on Exchange Rates or essay plan – see last 6Ec04 lesson possible questions.
Saturday 30 May	6Ec03 Reading for revision Check RAG sheet again – go back over any remaining weak spots Skills focus Answer data question – assess the case for regulating the Energy industry in the UK
Sunday 31 May	6EC04 Reading for revision Check RAG sheet again – go back over any remaining weak spots Skills focus Answer Essay or do essay plans for Q Evaluate the case for widening membership of the EU 30 marks
Mon 1 June	6Ec03 Jan 2010 Timed response  90 minutes Go over mark scheme and examiners report.
Tues 2 June	6Ec04 Jan 2010 Timed response 120 min Go over mark scheme and examiners report.
Weds 3 June	6EC03 Reading for revision Study Textbook and revision guide on Oligopoly, use game theory. Discuss impact on efficiency, consumer and producer surplus. Price discrimination valid. Re-do notes/key term cards on Oligopoly. Skills focus Answer data question on Oligopoly
Thursday 4 June	6Ec03 Revision Session – period 4 and 5 – get feedback on practice questions.
Friday 5 June	6Ec04 Revision Session – period 4 and 5 – get feedback on practice questions.
Sat 6 June	6EC03 Reading for revision Study Textbook and revision guide on Monopolistic Competition Skills focus Answer data question and multiple choice on Monopolistic Competition
Sun 7 June	6EC03 Reading for revision Study Textbook and revision guide on Regulations and regulatory failure. Skills focus Answer data question on Regulation and Regulatory failure
Mon 8 June	6EC03 Reading for revision Study Textbook and revision guide on price and non price competition. Skills focus Answer data question on price and non price competition
Tues 9 June	6EC03 Reading for revision Study Textbook and revision guide on perfect competition. Skills focus Answer data question on perfect competition
Weds 10 June	Period 4 and 5 6Ec03 Final Revision Session - Knowledge
Thursday 11 June	6Ec03 Paper pm Pre exam session – period 3 key knowledge reminder basic exam skills.
Fri 12 June	6Ec04 Reading for revision Study Textbook and revision guide on Ways of promoting growth and development And 4.3.5 What is poverty and inequality in developed and developing countries? Skills focus Answer international data question on Ethiopia focussing on Ways of promoting growth and development or essay plan
Sat 13 June	6Ec04 Reading for revision Study Textbook and revision guide on 4.3.7 What is the role of the state in promoting growth and development? Focussing on Fiscal issues – Public Expenditure, taxation and Public sector borrowing and public sector debt Skills focus Answer following data question: examine the significance of the differences of the size of the state sector between a developed economy such as the UK and a developing economy such as Malaysia. 15 marks. Focus on infrastructure – direct provision, land ownership. Nationalization. Welfare provision.
Sun 14 June	6Ec04 Reading for revision Study Textbook and revision guide on 4.3.4 How does a country compete? Skills focus Answer/Plan essay question 30 marks: Examine government policy in the global economy to increase international competitiveness.
Mon 15 June	6Ec04 Reading for revision Study Textbook and revision guide on 4.3.3 How is international trade recorded and financed? Skills focus Answer/Plan essay question: a)Examine whether global imbalances (current account surpluses and deficits, capital account flows) matter b) examine measures to reduce global imbalances.
Tues 16 June	6Ec04 Reading for revision Study Textbook and revision guide on monetary union – essentially the effects of a single currency and ECB base rate of interest on the rate of inflation; unemployment; the Balance of Payments and economic growth. Skills focus Answer Data question 15 marks: Assess the benefits and costs of European monetary union.
Weds 17 June	6Ec04 Reading for revision Study Textbook and revision guide on globalisation and trade. Skills focus Answer/plan essay 30 mark question : Discuss the impact of de-globalisation on the global economy.
Thursday 18 June	Period 4 and 5 6Ec04 Final Revision Session - Knowledge
Friday 19 June	6Ec04 Paper am 8am Pre exam session – key tips and reminder basic exam skills. Post exam lunch. HOORAY!!

6EC04 - essential viewing

The following is essential viewing for you to confidently talk about the global economy or a developed economy in the essay:

UK EconomyRevision Webinar:

A2 Economics - The UK Economy - must view

The following is an essential 30 minute guide to a developed economy you will be familiar with but need to be experts on if you are talking about the global economy or a developed economy in the essays:

A2: 6EC03 - how to pick up the marks

The following is only for rough guidance for 2015 exam  - remember mark schemes can change each year as questions change; don't over obsess about where the marks can be picked up just get on with answering the questions as best as you can. All the information here is based on the Mark Scheme from 2014.

"students that use standard theory and apply it to the context given can earn the marks efficiently"
http://qualifications.pearson.com/content/dam/pdf/A%20Level/Economics/2013/Exam%20materials/Examiner-report-Unit-3-(6EC03)-June-2014.pdf

6EC03

Multiple Choice - make sure you choose an option, many student forget to. Then to pick up the three use standard methods - define, annotate the diagram, draw a diagram, fill in empty boxes requiring simple calculations, use Knock Outs without repeating the key and remember to say the letter you are saying is wrong. Only use KOs if obvious - overthinking them wastes time.

Data Response
Always try to define - even when no marks awarded it usually helps to ensure you are answering the question.

Always try to use the data - all data reponses should be in context otherwise you may face a cap on the marks you can earn from picking up additional +1's in using data (e.g. numbers or"text" line 12 Extract 1).

Using a diagram at A2 level is normally awarded 2 marks.

Penny marks - remember 6EC03 is like paper 6Ec01 so your are likely to be awarded with 1 mark e.g 4 marks =  define fully 1+1 use data twice +1+1 or complete a claculation with the data e.g 5 firm concentration ratio 2 marks. Outline/Explain two reasons 6 marks =  (1+1+1) + (1+1+1)

There are more evaluation marks at A2 level - 18/49 so spot where and remember how to evaluate.

If 8 marks evaluate two points (2+2e  2+2e - remember you have to work hard at explaining so think of it as 1+1  & 1+1e.)
If 12 marks evaluate three points. 2+2e  2+2e   2+2e
If 16 marks evaluate four points. 2+2e   2+2e   2+2e   2+2e

AS ECONOMICS FINAL REVISION – 6EC02 – TUESDAY 19 MAY

Hopefully the AS Micro exam went ok.

As thoughts turn to AS Macro exam next Tuesday afternoon, here is a great resources with possible exam questions that may come up:

UK EconomyRevision Webinar:

Best wishes

Also - please find the following recommended day by day guide:

Resources Use the following Revision tasks to add to your revision plan – remember to treat as small bite-size sections. Traffic lighted specification – prioritise study of red sections, seek advice and guidance  - email tgray@cherwell.oxon.sch.uk for a quick answer or to arrange a revision session. 

Websites Keep referring to www.grayseconomics.blogspot.com 

Edexcel Exam papers Keep practicing using past questions – roughed out answers, 30 mark essay plans, timing yourself.

Friday 15 May - Discuss possible policy conflicts 30 marks Saturday 16 May	Define demand side policies - Fiscal and Monetary and Supply side, possible diagrams = 6 marks 1st conflict austerity measures causing deflation v monetary policy avoiding deflation, however government would say fiscal policy is supporting monetary - allowing BoE to keep interest rates low for the future. 2nd conflict - Supply side spending on Education (to boost productivity) via new Schools, cuts in tuition fees and reduce inflation v's government spending and the multiplier causing demand pull inflation; however size of multiplier, speed of education spending improving productivity 3rd conflict - Supply side benefit cuts to increase size of workforce to achieve growth versus fiscal concerns to reduce inequality however what else is changing e.g supply side reforms to combat discrimination and income tax cuts, also size of benefit cuts ECON 2 Reading for revision Study Monetary Policy, interest rates, (Quantitative Easing – just be aware that this is tryig to correct banking failure – getting banks to lend), role of Bank of England. Skills focus Answer data question on monetarism.
Sunday 17 May	ECON 2 Reading for revision Check RAG sheet again – go back over any remaining weak spots Skills focus Answer random (which you may not have covered) past exam question under timed conditions
Monday 18 May	Period 4 and 5 – Revision session – Room 1 with Mr Gray
Tuesday 19 May	Morning – relax – sleep, light exercise, good breakfast. Room 1 12.00 Pre exam briefing with Mr Gray – key exam skills and knowledge.

A2: Development Economics Tutor2u

Please please do take advantage of theses wonderful development resources on tutor2u:

http://beta.tutor2u.net/economics/search?q=Development


In addition the following OECD resources on the world in 2060 is excellent for evaluation:
http://www.oecd.org/eco/outlook/lookingto2060.htm
https://www.youtube.com/watch?v=fnIl212tBPk

A2: common context data question - Sub Saharan Africa

See tutor2u link: http://www.tutor2u.net/blog/index.php/economics/comments/unit-4-macro-growth-trade-and-development-in-sub-saharan-africa

Assess the case for Austerity measures in the UK?

Use data - identify Government spending cuts.

Choose 3 from the following for AS or 4 for A2.

1. Reduces demand pull inflation - however deflation
2. Reduces annual government borrowing however tax revenue also declining, so still borrowing £100billion a year. (AAA rating - A2 students)
3. Run a budget surplus to reduce National Debt - however still borrowing £100 billion a year
4. Cut benefits to encourage claimants to join the owrkforce and boost productivity of those in work as they lose income security - however benefits already v low, poverty, lack of jobs, income tax cuts instead (upto £10,000 per year tax free).
5. Create space for private sector e.g NHS cuts so private health companies provide for those that can afford to pay - however low business confidence so no private sector willing to crowd in where the government disappears (crowding out theory = A2 level).

Jan 2011 6Ec02 - Data Question 1

bi) GDP at constant prices means that the impact of inflation has been subtracted i.e. Real GDP; GDP at current prices is ignoring the impact of inflation so inflation may over-exaggerate what appears to be growth.

A2 condensed revision guide

A2 Economics

Schedule your timing carefully based on the mark allocation, multiple choices be ruthless 4 min max, the final data questions for 6EC03 and 4 require plenty of evaluation – so do plan this part carefully, think deeply. In the essay, part (a) “Explain” carries 20 marks (20 minutes – ensure 3 points evaluated and do not spend too long on) and part (b) carries 30 marks (30 minutes) – so you have 5-10 minutes of planning what to say and how to say it. Be ruthless in organising your time. Drive your exam desk!
Generally:
1. You are expected to use and evaluate basic microeconomic models (e.g. monopoly, competition and oligopoly and contestable markets) – cost, revenue, profit diagrams will be essential – don’t fall back on simple supply and demand analysis
2. As part of your evaluation try to question the validity of a piece of theory – question the assumptions on which it is based, put forward counter arguments, be aware of the limitations of economic analysis when dealing with real world industries and markets. Much of the evaluation requires considering the costs and benefits of particular policy options and the limitations of particular policy ideas (e.g. measures designed to correct for market failure)
3. Economic efficiency (static and dynamic) and economic welfare (including equity) must be included in your answers to most questions. There is often a trade-off between the two.
4. Often you will be asked to discuss solutions to economic problems (e.g. the alternative ways of dealing with pollution, different approaches to regulating an industry) – this is where the quality of your evaluation comes in and where you should exercise a degree of caution as to whether policy works at all!
5. You must be clear and well prepared on issues of market failure and potential government failure particularly as it relates to externalities, monopoly, and poverty and income inequality
6. Real world industries will be used (e.g. in the data response question). It is highly likely that there will be a question concerning a market structure and an industry that has been in the news in recent years (e.g. gas, water, electricity, telecommunications, airlines, postal services, retailing etc.)

Unit 3: Business Economics and the Distribution of Income

Theory of the Firm
Don’t automatically assume that firms seek to maximise profits, be aware of alternatives to profit maximisation and how this affects the conduct / behaviour of firms in a market (for example sales revenue maximisation (MR=0 and satisficing, normal profit option etc.)
Have a good understanding of the factors that affect a firm’s pricing power and how this is affected for example by changes in market structure, the regulation of an industry and business objectives. Elasticity of demand and supply can be used in most parts of the microeconomic syllabus for Unit 5. Often the analysis changes when you include changes in elasticity.
You are expected to make full use of relevant diagrams when answering questions on theory of the firm. Make sure you know them well and that they are accurate and fully labelled – these include diagrams that show economic efficiency and welfare in different market structures in the short and long run
Competition
Perfect competition – should be straightforward (distinguish between the industry and the single firm)
Assumptions are restrictive – but provide a benchmark against which to analyse imperfect competition
Be able to evaluate the potential gains from a more competitive/contestable market environment and distinguish between price and non-price competition



Monopolitic Competition – master the diagram(s).
Monopoly and Oligopoly
This is almost certain to come up in the exam – master diagrams and game theory. Also price discrimination.
Measures of market concentration and the main sources of monopoly power in the short and long run
Barriers to entry and exit (important in determining long run profitability and market structure)
Importance of product differentiation in determining consumer preferences / building brand loyalty
Price Discrimination (lots of real world examples please!) – 3 degrees, costs and benefits of
Consumer and producer surplus and Costs and benefits of industries with monopoly power
Interdependence between firms in oligopoly – an important market structure
Price collusion and economic welfare – conditions required for collusion; why do cartels collapse in LR
Price leadership, price wars – predatory pricing and limit pricing
Internal and external growth of a firm – implications for market structure
Some use of game theory will always be credited if applied correctly to a particular market structure
Contestable and Non-Contestable Markets
What makes an industry contestable?
How can government / regulators open up a market to competition (liberalisation)
Single European Market and competition in the UK (increasingly important))
Importance of sunk costs - examples
How does the degree of market contestability affect producer behaviour and consumer welfare?
Generally with any questions on market structure, behaviour of firms – focus on possible economic efficiency and welfare consequences – remember that most markets are dynamic – their structure does change over time
UK Competition Policy
Important for the data response question
Main features of competition policy – what does it seek to do (“surrogate competition”)
Recent trends in UK and European competition policy including the work of the OFT, the European Competition Commission and the Regulatory Authorities (including Gas, Electricity and Telecommunications)
Evaluation of price capping and other methods of market regulation
Be aware that technological change which affects the contestability of industries can be as important as regulatory decisions in affecting market performance


Unit 4: Government Policy, the National and International Economy
General Points
1. A good knowledge and understanding of recent trends / developments in the UK and international economy is expected. Refer to specific countries – show your knowledge. Examiners will reward use of relevant evidence in your answers. Show the examiners that you are up to date and interested in key economic policy issues!
2. Try to include some reference to the UK’s membership of the European Union in your answers if UK focussed – i.e. aim to include a European perspective in every question perhaps as part of the final evaluation – e.g. questions on the exchange rate or the balance of payments, or comparisons of living standards of countries inside the EU, or the single market and the potential gains from trade
3. Many of the questions will ask you to propose solutions to macroeconomic problems and evaluate current government policies – be aware of different approaches and focus in particular on demand and supply side causes and relevant policies and strategies
4. Full use can and should be made of AD-AS analysis / diagrams in your answers for example when discussing causes of economic growth, causes of inflation etc. Remember to make a clear distinction between short and long run aggregate supply
5. In the macro data question, make effective use of the data provided (remember to bring in your calculator) and time your answers carefully and provide detailed evaluation to score highly. Don’t’ spend too long on the low mark questions. Define your terms and then answer the question succinctly.
6. Often in your evaluation, you can distinguish between short run policy measures and strategies that are designed to achieve a target in the long run. The policies might be different
7. Government macroeconomic policy-making is never perfect – there are limitations and constraints on what a government can do, government failure can occur at a macro as well as a micro level
8. Define your terms precisely at the start of answers and read the question very carefully
Economic Growth and the Cycle
Endogenous and exogenous models of the economic cycle
Supply and demand shocks and their consequences (global demand shocks, oil price fluctuations etc)
Underlying trend rate of growth and the importance of the supply side – basic theories of growth
Productivity growth and competitiveness and link with economic growth in the long
Multiplier and Accelerator effects
The costs and benefits of economic growth (including sustainability and the environment)
Measuring living standards – limitations of NI accounts and alternative measurements (HDI, MEW)
International comparisons of living standards (PPP adjustments etc, HDI)
Unemployment and Inflation
Could well come up on the data question
Causes of consequences of unemployment (must consider supply side causes in detail)
Flexible labour markets – what are they, benefits and costs to individuals and businesses
The natural rate of unemployment (definition, diagram needed, what determines the natural rate?)
Phillips Curve analysis (Causes of inflation (AS-AD needed) – both domestic and external (including link to exchange rate and impact of globalisation)
Consequences of inflation in both short and long run (including the importance of inflationary expectations and impact on international competitiveness / investment)
Role of inflation targets as used in the UK in the last ten years (including impact on expectations)
Deflation
Why has inflation remained so low in the UK over the last decade (mixture of economic policy success, favourable global picture, high exchange rate, globalisation, reduction in pricing power, increased comp)
Managing the Economy
Monetary Policy
Role and performance of the MPC/BoE in recent years – including the arguments for and against an independent central bank
Impact of interest rate changes on the economy – the so called transmission mechanism of monetary policy (remember to use AS-AD diagrams, identify the asymmetric effects on different regions/industries, limitations of using interest rates as main tool for controlling AD – including time lags following a rate change, difference between nominal and real interest rates etc)
The Exchange Rate:
What determines its value?
Fixed versus floating exchange rate debate – UK has had a floating exchange rate now for a decade.
Government intervention in the exchange rate market – reasons? Effectiveness of intervention?
Recent trends in interest rates and the exchange rate and their economic impact (business responses to high exchange rate, impact on inflation and trade balance
Fiscal Policy
Direct and indirect taxes (evaluation of their relative merits / problems)
Fiscal policy and the distribution of income
Using Fiscal Policy to manage AD / inflation (AD-AS analysis again required)
The Budget balance and its significance
Changes in the size and pattern of government spending – impact on the economy
Interaction between fiscal and monetary policy – need for economic policy co-ordination
Remember that both fiscal and monetary policies have their limitations (particularly if the UK decides to join the Single European Currency)
Very important……….
Possible trade-offs between economic policy objectives and also the changing nature of these trade-offs over the years – for example whether control of inflation is at the expense of rising unemployment; can an economy continue to grow without causing an acceleration of inflation; the trade off between economic growth and the balance of payments………
International Trade
Changes in the pattern of trade between the UK and the Rest of the World – including long term changes in comparative advantage
Globalisation – what does it mean, how has it affected the UK economy (including trade performance)
Benefits / importance of trade for developed and developing countries
The model of comparative advantage – evaluation of its importance and its usefulness / limitations
Other benefits of international trade (including contestability of markets, consumer choice, improvements in economic efficiency, source of economic growth etc)
Protectionism – causes and consequences of import controls including the impact of tariffs and quotes
The European Union as a customs union – effect on the pattern of trade for the UK
The UK Balance of Payments
Current and capital account
Recent trends in the UK trade accounts – focus on capital flows
Does a balance of payments deficit matter?
Evaluation of policies designed to reduce a trade deficit / current account deficit including demand and supply side approaches
Income Inequality and Poverty
Knowledge of distribution of income and wealth and recent trends in the UK
Differences between absolute and relative poverty
What has caused the recent increase in relative poverty?
Evaluation of the different strategies / policies that might be used to reduce inequality and their possible impact on economic performance
National Minimum Wage and other policies introduced by Labour in their first five years in office
Remember that people hold different views as to the extent that a government should intervene to reduce poverty as a specific policy objective (including impact on incentives and investment etc)
Development Economics    

Difficulties in categorising. Lorenze curve/Gini. Absolute/Relative Poverty. Causes of low growth and development, problems in measuring growth and development. Solutions to low growth and development – Harrod Domar, Solow, Solow residual, market based versus government intervention (capitalism), FDI, foreign aid, debt cancellation, microfinance.

A2: Assess the view that a structural deficit is a more serious issue for a country than a cyclical deficit. 20 MARKS

A2: Assess the view that a structural deficit is a more serios issue for a country than a cyclical deficit . 20 Marks

It has been said that the UK is suffering a large structural deficit as before the great recession when the UK was at trend growth of 2 per cent per year tax revenue raised was insufficient to meet Government infrastructure (social capital) spending on Health, Education and transport. So even if the UK returns to trend growth there will be a permanent need for the government to borrow which may crowd out the private sector. By crowding out the private sector private companies may struggle to borrow money at low rates so this will damage UK levels of Investment and lower UK trend growth. In addition private health care may not be able to replace NHS provision for those that can afford to pay. The permanent nature of this problem means that a structural deficit is more significant than a short-term cyclical deficit.

However given low business confidence there is no private sector Investment to crowd out. Also the Bank of England’sQuantitative easing programme has provided more loanablefunds boosting the money supply availavle to private firms to borrow at low rates of interest in theory.

A cyclical deficit is when government is forced to borrow during a recession due to government spending on benefits automatically increasing and tax revenue declining as unemployment increases, wages fall and firms make a lower profit. This may not be a problem for the UK as a cyclical deficit acts as an automatic stabiliser – preventing a collapse in consumption and thereby stopping a deep recession, as in the case with Germany where benefits represent 2/3rds of average wages. By its nature a cyclical deficit will be followed by a cyclical surplus as the economy recovers and booms. As more people get a job tax revenues should automatically rise and government current spending on benefits fall. So a cyclical deficit means that businesses should not fear a tax rise in the future; however a structural deficit by its permanent nature may mean that businesses are put off increasing spending on new capital (Investment) as they fear a future government increasing business taxes to reduce the structural deficit.

However businesses may acknowledge that the structural deficit is needed to spend more on health, education and transport to lift UK’s trend growth through increased productivity and thereby National Income. Once these improvements have been made Government may no longer need to continue spending on building new roads, high speed 2 or hospitals/Schools. Also FDI may only be interested in short term profits and not fear future tax rises. Furthermore tax rises do not guarantee a rise in tax revenue according to the Laffer Curve – so firms may not need to fear a rise in business tax rates.

Finally a Cyclical deficit may be more serious than a structural deficit for the UK as we continue to live through the great recession. Even though the UK economy grew at 3% last year the UK economy has only recovered the position it was in terms of Real GDP in 2007 – we are nowhere near where we should be as an economy if trend growth had been maintained over those years. Furthermore there is still evidence that short term growth in the UK is weak with recession in our major export market. This means that the UK continues to have a cyclical deficit of £100 billion a year as tax revenue raised is low with firms making little profits , wages frozen and many workers on zero hour contracts. To achieve the golden rule that the budget should balance over the economic cycle would means that the UK may have to grow at over 3% for the next decade something very unlikely.

However it is very difficult to separate out a cyclical deficit and a structural deficit  or to define precisely what is the structural deficit e.g what if UK’s trend growth was now 2% rather than 1%. Also from 97-07 the UK did experience decade long growth (the NICE decade) so it could have run a cyclical budgget surplus then; the fact it did not perhaps does suggest the strructural deficit is a more serious issue. The Labour Government did though  see its spending on building more

Hospitals and Schools coming to an end in 2010 so again the issue of what is a structural deficit is debatable.

Tutor2u webinars

If you have had problems with accessing theme here are a few:

AS: Price Volatility & Buffer Stocks

AS: Price Elasticity of Supply

AS: Monetary Policy

AS: Multiplier and Accelerator

AS: Data Response Exam Skills for Micro

A2: Economic Growth in the UK

A2: Interpreting the Balance of Payments

A2: Business Objectives

New webinars

AS Micro - Analysis Skills

AS Micro - Evaluation Skills

AS Micro - Indirect Taxes and Subsidies

AS Macro - Exchange Rates

A2: Some Topical Issues in Trade and Development

Useful A2 resource - do play the video links and be patient with them - they are very clear and informative:

http://www.tutor2u.net/blog/index.php/economics/comments/some-topical-issues-in-trade-and-development

Can be used to answer following possible exam questions - try planning or completing

Q1 Essay - Evaluate the impact of Foreign Aid on an LEDC country. 30 marks


Q2 Essay - Examine why some countries grow faster than others. 30 marks

Use Middle Income trap concept as one paragraph

A2: Development Economics

A common exam theme is to contrast Poverty in a developing country and a developed country i.e. UK. A couple of really useful posts on tutor2u.com here to look over:


http://www.tutor2u.net/blog/index.php/economics/comments/plunging-commodity-prices-reignite-discussion-of-primary-product-dependency

http://www.tutor2u.net/blog/index.php/economics/comments/poverty-and-inequality-does-trickle-down-economics-work

AS: To what extent do demand side policies lead to conflicts between macroeconomic objectives? June 2009

Essay plan

Define Monetary policy (Bank of England's monthly MPC meetings setting interest rates to target inflation.

Define Fiscal Policy (Government's annual budget setting the level of Government expenditure and Tax Revenue) Also Micro fiscal policy e.g cutting benefits.

EVALUATE 3 CONFLICTS

Phillips curve: High interest rates - AD diagram - low inflation v high unemployment; however current data - low inflation/low unemployment (wage cuts rather than job losses), supply side shocks - oil.

UK's Trade deficit grows with increased Growth - however supply side policies (UK productivity - training), recession in export market (EU), impact of value of pound WIDEC.

Kuznets curve: Inequality/Pollution - increases with growth - however decreases at advanced stages, depends on what else is changing - government priority.

Benefit cuts reducing unemployment but increasing poverty - however scope how many affected, how alrge are the benefit cuts, income tax cuts, minimum wage.

A2: Trading blocs and the WTO

(2) ‘Trading blocs are becoming increasingly important in the world economy.’ 

(a) Discuss the benefits to a country of belonging to a trading bloc. (20 marks) 

(b) To what extent might the policies of trading blocs conflict with the objectives of the World Trade Organisation? (30 marks)

a) The meaning of a trading bloc should be made clear i.e. group of countries with agreed tariff reductions but excluding countries not in the bloc e.g. ASEAN. Different types of blocs - free trade area (NAFTA), customs union - MERCOSUR http://ec.europa.eu/trade/policy/countries-and-regions/regions/mercosur/ . Economic and customs union (EU).

Up to three points should be considered and evaluated with specific reference to a blocs and a country in the world economy e.g UK and EU

Benefits include: • Increased specialisation and trade within the bloc; • Benefits resulting from above (law of comparative advantage); • Increased potential market for firms; • Possibility of benefiting from economies of scale; • Greater choice and lower prices for consumers.

Evaluative points: *what else is happening inthe world economy - financial crisis, oil volatility. * Risk of blocs breaking up - UK leaving EU, Euro instability -PIIGS exit risking break up. * Problems with comparative advantage theory. * Lack of integration - mergers within blocs. * Trade diversion rather than trade creation. *trading bloc development provides benefits/costs e.g EU single market, single monetary and possibly fiscal policy - immigration control, over demand side policies.

(b) To what extent might the policies of trading blocs conflict with the objectives of the World Trade Organisation? (30 marks)

To what extent = how significant! This means you do not always have to counter your point - you can say it is really significant in support of your point or it is relevant but very low significance compared to something else.

The objectives of the World Trade Organisation should be explained i.e. • promoting world trade through the reduction in trade barriers • policing existing agreements. Evidence of understanding of how the WTO operates should be evident - decisions made at WTO meetings USA+EU+Japan v BRICS +LEDCs but they need in the end to agree as consensual view so compromise, examples of WTO decisions.

Specific examples of trading blocs conflict with the objectives of the WTO should be evident.

Trading blocs might:

1.  Distort world trade; Factory Asia 50% of world manufacturing, development of comparative advantage hard to compete against for LEDC's - problems with South American countries gaining access to NAFTA markets or African to EU to develop comparative advantages. Trade diversion v Trade creation - e.g. Poland's entry to EU as EU's grain basket.
2. Have adverse effects on those countries who do not belong to them; Russia or Turkey and EU. However forming own trade blocs - Russia's membership of new Eurasian Economic Union (EEU) - a customs union http://www.bbc.co.uk/news/world-asia-32403837, Monaco (tax free haven)/Switzerland/Norway's (oil) success outside EU
3. Lead to inefficient allocation of resources e.g. CAP operated by the EU; 
4. Contradict the Most Favoured Nation clause of WTO - however there are exceptions when it comes to the development of free trade area (trade blocs) - for example ASEAN development such as Thailand opening up its vehicle industry to allow imported components from within the ASEAN region but USA may feel not being treated equally.
5. Result in conflicts between different trading blocs and increased protectionism between blocs e.g CAP in EU - tariffs and subsidies, dumping. However EU's revising preferential trade agreements with former African colonies and WTO exemption to help development of poorest countries (new Protectionism). http://www.euractiv.com/development-policy/eu-africa-economic-partnership-n-news-532274 Old example of EU v USA (NAFTA) - US steel protectionsism resulting in WTO allowing EU to reatliate against US jeans and oranges reulting in US dropping restrictions. 
6. EU sanctions and trade restrictions against Russia goes against WTO MFN  - however WTO exemption. Russia took 20 years to join WTO - will it leave? WTO exemptions allowing trade restrictions against countries that engage in unfair practice (slave labour, low environmental standards, employment conditions, human rights abuses) - power of blocs to vote in WTO meetings - specific examples e.g. Malaysia. Difficulty in reaching consensus at WTO level  https://www.wto.org/english/thewto_e/whatis_e/tif_e/org1_e.htm
7. WTO losing power as trading blocs become more powerful e.g. Sub Saharan Africaneconomies losing access to USA in export of raw materials to Mexico. Emergence of TTIP - EU/USA bi-lateral trade agreement http://www.bbc.co.uk/news/uk-politics-30493297

There should be a clear understanding of the WTO together with consideration of four factors which should be identified, explained and their significance should be considered.