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28 October Agenda Review definitions Continue with Monetary Policy This Week: Finish Monetary Policy (2.5) Next Week: Supply-side Policies (2.6)

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Presentation on theme: "28 October Agenda Review definitions Continue with Monetary Policy This Week: Finish Monetary Policy (2.5) Next Week: Supply-side Policies (2.6)"— Presentation transcript:

1 28 October Agenda Review definitions Continue with Monetary Policy This Week: Finish Monetary Policy (2.5) Next Week: Supply-side Policies (2.6)

2 IA Commentaries - Drafts SL 2nd Commentary - 27-30 Oct SL 3rd Commentary - 25-29 Jan Final IA portfolio: 22-26 February

3 Demand The quantity of a good or service that consumers are willing and able to buy at a given price in a given time period p. 18

4 Diversification An explanation that it is a strategy to reduce reliance on the export of a narrow range of goods and services to reduce the risks of over- specialisation. From mark scheme

5 Consumer Surplus The extra satisfaction (or utility) gained by consumers from paying a price that is lower than that which they are prepared to pay p. 18

6 Economic Growth An explanation that it is an increase in the value of real output (over time). Or, an explanation that it is an increase in real GDP. From mark scheme

7 Externalities The production or consumption of a good or service that has an effect upon a third party p. 141

8 This Autumn -27-30 October (Draft of 2 nd IA Commentary) November – Sections 2.5-2.6 / Start 3.1

9 Monetary Policy A monetarist would argue that monetary policy is most effective through the use of A.inflation targets. B.discretionary demand management. C.tax cuts. D.reducing the budget deficit. From: Multiple Choice Questions for Economics

10 Syllabus Item 121 Explain how changes in interest rates can influence the level of aggregate demand in an economy. Describe the mechanism through which easy (expansionary) monetary policy can help an economy close a deflationary (recessionary) gap. Construct a diagram to show the potential effects of easy (expansionary) monetary policy, outlining the importance of the shape of the aggregate supply curve. Describe the mechanism through which tight (contractionary) monetary policy can help an economy close an inflationary gap. Construct a diagram to show the potential effects of tight (contractionary) monetary policy, outlining the importance of the shape of the aggregate supply curve.

11 Draw diagrams for each of the following cases. How/Where shall we do the diagrams? 1.Monetary policy used to close deflationary gap (Keynesian model) 2.Monetary policy used to close inflationary gap (Keynesian model) 3.Monetary policy used to close deflationary gap (Monetarist model) 4.Monetary policy used to close inflationary gap (Monetarist model)

12 Syllabus Item 122 – Focus on the EU Tomorrow Explain that central banks of certain countries, rather than focusing on the maintenance of both full employment and a low rate of inflation, are guided in their monetary policy by the objective to achieve an explicit or implicit inflation rate target.

13 Syllabus Item 123 Evaluate the effectiveness of monetary policy through consideration of factors including the independence of the central bank, the ability to adjust interest rates incrementally, the ability to implement changes in interest rates relatively quickly, time lags, limited effectiveness in increasing aggregate demand if the economy is in deep recession and conflict among government economic objectives.

14 What conflicts are there? “… conflict among government economic objectives…”

15 Consolidate your knowledge and understanding of unemployment: Complete Workpoint 17.8 on p. 220 Please share as a Google Doc.

16 Syllabus http://ibeconomics-isd.weebly.com/

17 EU Zone – Many countries / One monetary policy http://krugman.blogs.nytimes.com/2013/06/03/th e-macroeconomics-of-european-disunion/ http://www.unc.edu/depts/europe/euroeconomics /Monetary%20Policy%20ECB%20Challenges.php http://krugman.blogs.nytimes.com/2012/06/24/rev enge-of-the-optimum-currency-area/ http://krugman.blogs.nytimes.com/2012/07/29/int ernal-devaluation-inflation-and-the-euro- wonkish/?module=Search&mabReward=relbias%3A r%2C%7B%221%22%3A%22RI%3A8%22%7D


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