FROM AS TO A2 Rachel Cole 25 June 2008

Consumer debt at record levels in UK and USA

Personal debt 20% income in UK is used to pay off debt £1.4tr in UK; $45tr in US

Public sector debt G and T Is fiscal policy in a strait jacket?

External debt

Oil prices have quadrupled

Mervin has written another letter June 16th See letter on

Dear Chancellor… 'temporary' nature of higher inflation and the 'unnecessary volatility in output and employment. MPC will use Bank Rate to bring inflation back to the target within the next 12 months. the rise in oil and food prices represents a change in relative prices -- with core inflation remaining low (1.5 percent in May) inflation is likely to rise sharply in the second half of the year to above 4 percent suggestion that Bank Rate will remain at 5 percent for some months to come, which counters the prevailing view that the central bank would have to hike borrowing costs to rein in inflation.

Work moves to Asia

Outsourcing or offshoring? Outsourcing is where part of the production process is transferred to a lower cost country e.g. Edexcel Offshoring is where core elements of the business are transferred abroad

Extended Writing at A2 Need to write essays and extended responses (to some parts of data qs) These require an ability to …….. develop a coherent argument apply concepts explain transmission mechanisms fully evaluate data, theories, ideas

SYNOPTIC ASSESSMENT AT A2 All syllabuses include synoptic assessment in one or more A2 modules Therefore, dont forget what youve learned in AS! You may need to use concepts from AS in your answers to A2 questions e.g. micro supply & demand; elasticities; AD/AS analysis

Assess the view that the main aim of government economic policy should be economic growth. 1. : INTRODUCTION: Knowledge, understanding and application: Meaning of economic growth….. increase in real GDP; associated with a rightward shift in PPF or LRAS curve Analysis: associated with a rightward shift in PPF or LRAS curve Evaluation: in practice difficult to measure increase in productive capacity

Growth as an aim of economic policy (2) 2. BENEFITS OF GROWTH: Knowledge, understanding and application: To consumers To firms To government CONSUMERS Analysis: Growth implies higher real incomes so consumers can afford to buy more goods and services Evaluation: Extent of impact depends on how much incomes rise; whether or not the marginal propensity to save changes; impact of taxes e.g. fiscal drag, externalities

Growth as an aim of economic policy (3) 3. BENEFITS OF GROWTH TO BUSINESSES: Knowledge, understanding and application: Increase in sales; increase in profits Analysis: Higher real incomes lead to increase in consumption (C is over 60% of GDP) Evaluation: Impact on consumption of domestic goods might be limited if the MPM (marginal propensity to import is high)

Growth as an aim of economic policy (4) 4. BENEFITS OF GROWTH TO THE GOVERNMENT : Knowledge, understanding and application: Increase in tax revenues Analysis: Increased real incomes imply increase AD. Workers earn higher incomes and pay more tax. Also, more people employed who are subject to taxes on incomes and increased spending. Evaluation:

Growth as an aim of economic policy – The downsides Opportunity cost of growth External costs of growth Increased inequality

Growth as an aim of economic policy. The downsides (2) Costs to individuals and society - consider depletion of resources, congestion, heavy industrialisation or services? Inflation - consider elasticity of AS curve Deterioration in the trade in goods and services balance - consider elasticity of demand for exports nad imports

Growth as an aim of economic policy – what about other objectives? Use this list when looking at economic implications: Low inflation Low unemployment B/P sustainable equilibrium More equal distribution of income Environmental sustainability

Now consider this…. Evaluate the likely economic effects of a substantial increase in immigration on the UK economy. Plan an answer; assume each issue will form a paragraph.

Think critically!!! Who are the immigrants? Age? Skills and qualifications? Permanent or temporary?

Economic effects of a substantial increase in immigration Possible positive effects: Increase in AS Increase in real output Reduction in the price level To businesses: downward pressure on wages To the government: increase in tax revenues

Price Level Real Output AD AS AS2 PL1 PL2 Y1 Y2

Economic effects of a substantial increase in immigration Possible negative effects: Increased pressure on housing market – first time buyers Environmental impact Increase in pressure on public services e.g. health, education, transport Outflows of money from the current account of B/P to families in home countries

DEVELOPING YOUR SKILLS Apply economics to everything you do! How about: The pricing of nightclub entrance? The economic case for and against taking a gap year? Why theres a light in your fridge but not your freezer