It is when the consumer has the ability and power or freedon to choose the production of goods and services or the allocation of resources in a free market economy
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A2 ECONOMICS: Guess Paper-4
- Thread starter Qamar Baloch
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Does anyone of you have got the asnwer key for 2 a and 2b plzz...email it to me on [email protected]
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Okay guys, I've sent everyone whatever I've got. I'm off now, best of luck tomorrow and insh'Allah we will all do great! Please keep me in your prayers. ^_^
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omg im so nervous! i hope questions 1,3,5 will be out as i focus alot on this 3!!!
could anybody mail me the answers of 1b 2 and 5..at [email protected]
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1b) 1. expl interest rate policy
2. expl link between changes in interest rate and rate of inflation
an increase in interest rate
-makes saving more attractive and borrowing less attractive---reduce aggregate spending and therefore reduce inflation
-can also decrease the prices of assets such as shares and property-⬆interest rates people buy fewer assets,decrease prices of assets. lower value of assets will decrease householder's wealth and they may not be willing to spend money. this reduce inflation
-may see money inflows from oversea as foreign investors look for higher returns in the nation with higher interest rate and attract more foreign invest. on properties and other assets, making the country local produced g&s become more expensive abroad and reduce demand
-leads to an appreciation in the value of currency and this reduces the import prices of g&s as the imports goods become cheaper in terms of country's currency
-probably reduce the confidence and expectation for the future biz performance, which may further reduce the consumption and investment in the macro economy.
in general, govt. can ⬆the interest rate to ⬇the AD by shifting the AD to left and then further reduce the price level of g&s.(draw a diagram showing the effect of an increase in interest rate)
3. however, according to the case that there is a sharp rise in oil price, the economy may suffer from cost push inflation. if the inflation is caused by an increase on oil price, the interest rate policy may be less effective to control the cost-push inflation. to control cost-push inflation, govt. might reduce the tariff on imported oil and increase the domestic currency exchange rate if floating exchange rate system is applicable.
in conclusion, the effectiveness of such policy would depend on the interest elasticity of demand
Q.2
(a) Explain the factors influencing the level of investment in an economy. [10]
(b) Discuss the extent to which national income is determined by private investment.
[15]
a) Definition - investment = purchase of capital goods
Factors influencing level of investment:
-Demand factors
Expectation of the marginal returns from investment
Level of risks and uncertainty - inflation, exchange rate fluctuations, government policy
Accelerator - Level of output - increase, decrease or stay the same
-Accelerator coefficient - capacity, capacity of suppliers, technology and expectation
-Supply/cost factor
Interest rate - oppotunity cost of investment
Government's grants, tax exemption
b) definition of national income - net national product
define private Investment as a component of national income
Short run impact of private investment
-increases national income through multiplier and acccelerator
-cover depreciation and maintain potential output
Long run
-increase potential output and national output
-generate net income from investment in other countries
-Make domestic industries more developed and increase national income by increasing exports
But
-Private investment might not the the biggest component of national income (it depends on the economy)
-Investment might have less effect if accelerator coefficient and mpc are low.
Conclusion:
Investment is essential to achieve sustained growth in national income
In the short run, the investment has less effect on national income as expenditure on consumption of consumer good is switched to investment.
5) This could firslty include, how in perfect and imperfect market labour wage rates are affected. This could be due to MRP in perfect competion, Labour in perfect competition earn relatively higher than in imperfect competition due to Monopsony power draw the diagram.
Next you can include, how strong trade union and govt. minimun wage rule can affect the wages.
Also, people in a ountry are employed in different sectors so earn different wages.
One can also include, different skills, education, training , geographicall and occupational immobility, age, gender, religion descrimination can also be the reason.
Moreover, economic rent and transfer payments with diagram can also be included.
2. expl link between changes in interest rate and rate of inflation
an increase in interest rate
-makes saving more attractive and borrowing less attractive---reduce aggregate spending and therefore reduce inflation
-can also decrease the prices of assets such as shares and property-⬆interest rates people buy fewer assets,decrease prices of assets. lower value of assets will decrease householder's wealth and they may not be willing to spend money. this reduce inflation
-may see money inflows from oversea as foreign investors look for higher returns in the nation with higher interest rate and attract more foreign invest. on properties and other assets, making the country local produced g&s become more expensive abroad and reduce demand
-leads to an appreciation in the value of currency and this reduces the import prices of g&s as the imports goods become cheaper in terms of country's currency
-probably reduce the confidence and expectation for the future biz performance, which may further reduce the consumption and investment in the macro economy.
in general, govt. can ⬆the interest rate to ⬇the AD by shifting the AD to left and then further reduce the price level of g&s.(draw a diagram showing the effect of an increase in interest rate)
3. however, according to the case that there is a sharp rise in oil price, the economy may suffer from cost push inflation. if the inflation is caused by an increase on oil price, the interest rate policy may be less effective to control the cost-push inflation. to control cost-push inflation, govt. might reduce the tariff on imported oil and increase the domestic currency exchange rate if floating exchange rate system is applicable.
in conclusion, the effectiveness of such policy would depend on the interest elasticity of demand
Q.2
(a) Explain the factors influencing the level of investment in an economy. [10]
(b) Discuss the extent to which national income is determined by private investment.
[15]
a) Definition - investment = purchase of capital goods
Factors influencing level of investment:
-Demand factors
Expectation of the marginal returns from investment
Level of risks and uncertainty - inflation, exchange rate fluctuations, government policy
Accelerator - Level of output - increase, decrease or stay the same
-Accelerator coefficient - capacity, capacity of suppliers, technology and expectation
-Supply/cost factor
Interest rate - oppotunity cost of investment
Government's grants, tax exemption
b) definition of national income - net national product
define private Investment as a component of national income
Short run impact of private investment
-increases national income through multiplier and acccelerator
-cover depreciation and maintain potential output
Long run
-increase potential output and national output
-generate net income from investment in other countries
-Make domestic industries more developed and increase national income by increasing exports
But
-Private investment might not the the biggest component of national income (it depends on the economy)
-Investment might have less effect if accelerator coefficient and mpc are low.
Conclusion:
Investment is essential to achieve sustained growth in national income
In the short run, the investment has less effect on national income as expenditure on consumption of consumer good is switched to investment.
5) This could firslty include, how in perfect and imperfect market labour wage rates are affected. This could be due to MRP in perfect competion, Labour in perfect competition earn relatively higher than in imperfect competition due to Monopsony power draw the diagram.
Next you can include, how strong trade union and govt. minimun wage rule can affect the wages.
Also, people in a ountry are employed in different sectors so earn different wages.
One can also include, different skills, education, training , geographicall and occupational immobility, age, gender, religion descrimination can also be the reason.
Moreover, economic rent and transfer payments with diagram can also be included.
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i wrote that
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Good Luck People!
And Thanks A lot Sir Qamar for your sincere help!
And Thanks A lot Sir Qamar for your sincere help!
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Best of Luck!
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Discussion for P3 will start from here onwards. So, when you come back plz rejoin me here. Thanx
pls where can i download economics A2 textbook. i need to read it now. thx
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how did the paper go people?
Wage differential and NI shortcomings was tested, i did those questions! Qamar Baloch
Wage differential and NI shortcomings was tested, i did those questions! Qamar Baloch
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These books are not available online. You may ask for the book. We can send it to you. You may get P3 book with complete solution. Contact at [email protected].
Qamar Baloch: Wage inequalities and Economic efficiency were tested!! BEST PAPER EVER!!! THANK YOU SIR...=)
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The paper went very well macro economics questions were very easy. Thanks Sir Qamar Baloch your guess really helped!
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