economics theme 2

Question 1

market based v interventionist policy
(SS)

Answer 1

market based policy=removing barriers limiting output and raising prices
interventionist policy-correct market failure by intervening and changing the outcome

Question 2

6 variable effecting incentives to work and invest (SS)

Answer 2

1.tax on income-discouraged from hiring worker due to MRI, discourage individuals
2.welfare benefits-too high
3.poverty and unemployment trap- gain is little or negative from working
4.subsidising workers-receive tax rebate reducing poverty trap
5.tax on profit- discourage investment due to low ROI
6.R+D- tech development increases efficiency and cuts taxes

Question 3

4 ways of promoting competition (SS)

Answer 3

1.Privatisation- move assets to private sector increasing profit incentive
2.Deregulation- removing gov control encouraged production and creaming of market
3.Competition policy-reduce monopoly power
4.Industrial policy-promote individual firms to grow the economy

Question 4

4 supply side policies effecting the labour market

Answer 4

1.Improving labour market flexibility
2.trade unions- raise wages making output and employment lower
3.migration-increases working force, can target particular skills where there is shortages
4.minimum wage-higher wage rate means less demand for workers

Question 5

5 types of labour flexibility

Answer 5

1.geographical flexibility-willingness of workers of firms to relocate
2.external numerical flexibility-ability of firms to adjust workforce to their needs
3.internal numerical flexibility-ability of firms to adjust working hours
4.functional flexibility-ability of firm to redeploy worker to another job-multi skilled
5.wage flexibility-ability to adjust wages to demand and supply

Question 6

3 ways of improving skills and quality of workforce

Answer 6

1.education- funding and length spent in full time education effect attainment
2.Training-coslty to provide so gov subsidies
3.immigration-encourage immigration of individuals with above average skills

Question 7

5 Strength and weaknesses of supply side policies

Answer 7

1.Economic growth-grow productive potential and extra output- dependent on success of policy
2.inflation-succesful policy reduces price level-only id LRAS increases slower than AD
3.Unemployment-only reduces if AD has larger increase than LRAS
4.Current account(BOP)-dependent on impact on exports and imports- more exports improves CA
5.distrubution of income-widen gap between low and high earners. High income appreciate most of the GDP-disproportionate benefit

Question 8

6 ways IR effect AD curve (MP) (DS)

Answer 8

1.consumer durables-high IR lowers sale of durable and consumption expenditure
2.the housing market-low IR lowers mortgage making houses more affordable increasing: increase houses built, purchase more consumer durables increases consumption, borrow more
3.wealth effect-Low IR increases demand and asset price increase spending increase price of gov bonds
4.saving-high IR increase saving fall AD
5.investment-Low IR, Investment = more profitable
6.exchange rate-fall IR Fall value of domestic currency-domestic good=cheaper foreign good=expensive increases export decrease import boost AD