Paper 2 Essay plans Flashcards
1
Q
What are the pros of Growth and evaluate them.
A
- Decreased unemployment
Ev - usually low paid and unstable jobs therefore no long term benefit to the economy - Increased Exports
Ev - imports increase so it depends on which one is greater - Increased tax revenue - better schools and hospitals - increased living standards
Ev - no help if tax is spent on debt interest
2
Q
What are the cons of Growth and evaluate them.
A
- Supply constraints = demand pull inflation
Ev - boost LRAS to avoid supply constraints - Damage to the environment
Ev - sustainable industries - Increased Imports
Ev - no issue if we buy locally produced goods
3
Q
What are the pros of unemployment and evaluate them.
A
- Decreased Imports
Ev - doesn’t mean more locally produced goods will be purchased - Discourages Inflation
Ev - we could go into a deflationary spiral due to the decrease of consumption - Promotes self-employment and entrepreneurship
Ev - appeals to small amount of people and doesn’t guarantee success
4
Q
What are the cons of unemployment and evaluate them.
A
- Worsens gov budget deficit due to unemployment benefits
Ev - depends on the rate of unemployment - Bad for society, Crime = negative externality
Ev - depends on the welfare safety net in place i.e free school meals, free childcare etc - Decreased consumption
Ev - this will reduce inflationary pressures
5
Q
What are the pros of inflation and evaluate them.
A
- discourages delayed purchases
Ev - - Indicates economic growth
Ev - not always accurate e.g when the economy is at Yfe - A little rise in prices boots business confidence = investment and growth
Ev - depends on how much prices rise by.
6
Q
What are the cons of inflation and evaluate them.
A
- Quickly gets out of control
Ev - gov can introduce policies to keep inflation low e.g contractionary monetary policy - If wages don’t keep up with prices - less consumption = falling living standards
Ev - inflation proof pay rises can be negotiated - Wealth distribution - rent becomes more expensive for the poor, assets e.g houses become more expensive for the rich
Ev -
7
Q
What are the pros of deflation and evaluate them.
A
- Increased Purchasing Power
Ev - delayed purchases - If prices fall in the UK but not abroad, we may become more competitive
Ev - not sustainable in the long run - Decreased production costs
Ev - If consumers are delaying purchases this decreases firms profits - Lower interest rates - encourages borrowing and investment
Ev - discourages saving
8
Q
What are the cons of deflation and evaluate them.
A
- deflation can increase the real value of debt
Ev - depends on how long the deflation lasts - Delayed purchases
Ev - - Deflation is hard to get rid of
Ev - QE can be used to help create some inflation
9
Q
Describe and evaluate the arguments for using expansionary fiscal policy.
A
- Increased consumption due to tax cuts - increases AD = actual growth
Ev - tax cuts don’t guarantee consumers will spend - especially if nervous - Injections can be injected towards the supply side to boost LRAS
Ev - the impact on the supply side may take years to have an effect - Avoiding deflation - helps boost the economy to prevent going into a deflationary spiral
Ev -
10
Q
Describe and evaluate the arguments against using expansionary fiscal policy.
A
- Too much stimulation close to Yfe = supply constraints
ev - if we have lots of spare capacity this is not an issue - Inflationary pressure if at Yfe
ev - if we have lots of spare capacity this is not an issue - Worsens the gov budget deficit due to decreased taxes and increased gov spending
ev - the bond markets are happy and the debt can be paid back later
11
Q
Describe and evaluate the arguments for using expansionary monetary policy.
A
- Reduced unemployment - decreased interest rates = more consumption and investment = uses up spare capacity
ev - cuts in interest rates dont guarantee nervous consumers will borrow more - Preventing deflation
ev - - Supporting investment due to decreased borrowing costs
ev - nervous firms may decide not to borrow if it looks too risky
12
Q
Describe and evaluate the arguments for using expansionary monetary policy.
A
- Too much stimulation close to Yfe = supply constraints
ev - if we have lots of spare capacity this is not an issue - ev - cutting interest rates = hot money flows out = pound weakens = higher priced imports = imported inflation
ev - pound weakens = more exports = great competitiveness - Low interest rates negatively effect those with savings
ev - it depends how long rates are low as to how much they are affected
13
Q
Describe and evaluate the arguments for using contractionary fiscal policy.
A
- Less inflation due to less supply constraints as AD shifts in
ev - only beneficial when there is demand pull inflation not cost push - Increased gov revenue = smaller budget deficit
ev - the bond markets are happy to lend to us - Decreased imports as consumer disposable income decreases
ev - doesn’t guarantee locally produced goods will be purchased
14
Q
Describe and evaluate the arguments against using contractionary fiscal policy.
A
- Unemployment due to less injections = less AD = less workers needed
ev - depends on how big the rates are cut - Equity concerns - an increase in taxes may disproportionately affect vulnerable populations.
ev - - Less spending = less opportunity to work on the supply side and boost LRAS
ev - supply side takes time
15
Q
Describe and evaluate the arguments for using contractionary monetary policy.
A
- Less inflation due to raised interest rates = less borrowing = less consumption.
ev - inflation only decreases when we are at Yfe. - Lower priced exports due to raised interest rates = hot money flows out and the pound weakens.
ev - imported inflation - ev -
