AS Macro Exam Tekkers (Unit 2) 2013 version

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AS Macro Exam Tekkers (Unit 2) 2013 version

  1. 1. 1 UNIT 2: Managing the Economy
  2. 2. 2 AD/AS Analysis  Know your AD/AS perfectly:  Which factors cause the 2 curves to shift?  Resultant impact on price (y-axis), output (x- axis) and hence employment? Deduce the likely effects on the UK‟s trade position.  No need to show LRAS, although it is useful to illustrate an output gap.
  3. 3. Slide 3 Unit 2: Overall statistics from Jan 2013 Mean score: 54 out of 80 marks „A‟ grade boundary: 65 marks = 81%! „E‟ grade boundary: 41 marks 77/80 required for 100 UMS
  4. 4. Structure of the Exam 90 minutes, 80 marks  No multiple choice questions  Choice of one data response question from two – 80 marks.
  5. 5. Slide 5 Data response  7 sub-questions in each data response.  Significant number of evaluation marks (20 out of 80) especially for high mark base questions.  More evaluation than for micro, which was 16/80.  A standard formula for evaluation:  12 from 30 marks  4 each from two 12 mark questions
  6. 6. KAA and EV Marks Meaning Knowledge 20 Define economic terms in each sub- question Application 20 Give a data reference in each sub- question. Analysis 20 Explain the economic theory (perhaps including AS/AD diagram) Evaluation 20 Discuss the effectiveness of your Analysis point 80 6
  7. 7. Command words  Define, Explain, Analyse, Distinguish between, Identify and Outline require no evaluation.  Evaluate, Assess, Discuss, To what extent, Examine do require evaluation. If it‟s a 12 or 30 mark question evaluate; if it isn‟t – don‟t 7
  8. 8. Some past examples, using these command words: „Define the term “wealth effect”‟. (4 marks) Examiners‟ Answer “When asset values (such as house prices) change (2 marks), then this affects spending (2 marks).”
  9. 9. “Explain” „Explain the impact on aggregate demand of the fall in the size of the current account deficit, as shown in Figure 1‟ (6 marks)  Define current account deficit (2 marks)  Explain that a fall in the deficit will reduce the extent of the withdrawal (2)  As such, AD will shift right, or will not shift left as quickly as it used to (2)  Give some numbers from the data as evidence (2)
  10. 10. “Analyse” „Analyse 2 possible implications for macroeconomic policy of inaccurate forecasts of GDP growth data.‟ (8 marks).  If GDP growth is actually higher than forecast then output could be nearer to full employment than expected (2) and the MPC might need to increase interest rates (2).  If GDP growth is actually lower than forecast then the output gap could be larger than expected (2) and current fiscal policy might need to be loosened ( ↑G, ↓T). (2)
  11. 11. “Distinguish between” “With reference to Extract 1, distinguish between fiscal policy and monetary policy.” (6)  Define FP and MP (2 marks)  Use of extracts (2 marks)  Identification of certain differences (up to 4 marks), e.g. - the government conducts fiscal policy and the MPC conducts monetary policy (2) - MP is mainly a demand-side instrument whereas FP can be used as both D-side and S-side. (2)
  12. 12. “Identify” “With reference to figures 1 and 2, identify changes in house prices and affordability of houses in the UK since 2005.” (4)  House prices peaked in 2007 (1) at £200,000 (1)  Affordability was at its lowest in 2007 (1) with house prices at 5 times average earnings (1) Note: no explanation required
  13. 13. “Outline” “Outline how the Consumer Price Index is calculated” (4) Award reference to:  Basket of goods (1)  Price survey (1)  Index – process of how an index is compiled (1)  Base year (1)  650 items (1)
  14. 14. Evaluation in macro (1) Similar to micro, but in Unit 2 there is greater scope for students to incorporate their own knowledge of the UK economy:  Use evidence to back up your assertions  Use evidence to question your assertions  Consider whether other factors are more important  Consider different effects on different parties  Consider short v long run effects  Try to weight/prioritise arguments.
  15. 15. Evaluation – an example *b (iii) With reference to Figure 2, discuss the significance of investment for economic growth. Illustrate your answer with an aggregate demand and supply diagram. (12) KAA = 8, EVALUATION = 4 Note that „quality of writing‟ will be taken into consideration for questions marked with an asterisk.
  16. 16. First – the 8 KAA Marks “With reference to Figure 2, discuss the significance of investment for economic growth. Illustrate your answer with an aggregate demand and supply diagram.” (12) (investment rose over the period)  Use of data reference from Figure 2. (2 marks).  Diagram: AD and/or AS shifts to the right (4 marks)  Explain how an increase in I can boost AD (2) or AS (2) and hence economic growth.
  17. 17. Next – the Evaluation  Depends on the effects of other factors in the economy (e.g. consumer confidence and consumer debt, which were mentioned in the extracts)  Knowledge that investment is a small but significant component of AD (about 15%)  The effects on AD may appear before those on AS  Much depends upon the type of investment – explain.  It is possible to over-invest, i.e. if demand is lacking.  Correlation might be caused by other factors/ data might be coincidental. 2 marks for each, perhaps up to 4 for a very well explained point
  18. 18. Common Error The question asks for the link between investment and growth, so students writing about the effects of investment on inflation, employment and trade are wasting their scarce time. Do as instructed!
  19. 19. The 30 mark question  Do not be afraid!  With good technique, you should be looking to score proportionately as well, if not better, on this question than on the shorter sub- questions?  Why? Because the mark scheme is generous.
  20. 20. Breakdown of marks KAA = 18  2 to 6 marks for definitions  Usually 4 marks awarded for an AD/AS diagram (occasionally 2 marks)  Explanation of 2 policies/causes/factors/effects = (2 x 6 marks)  Explanation of 3 policies .. = (3 x 4)  They will only mark your best 3
  21. 21. Breakdown of marks EV = 12 “of which award 2 very well developed points (6 marks each) or three factors clearly given (4 marks each)” Candidates should “present an argument and conclude on the basis of that argument”.
  22. 22. An example – Jan 2011 “Assess the likely effects on the UK‟s current account of the balance of payments of changes in consumption, investment and the exchange rate (£), as shown in Figures 1 and 2” (30) [the data shows that C fell, I fell, £ fell]
  23. 23. “Assess the likely effects on the UK‟s current account of the balance of payments of changes in consumption, investment and the exchange rate (£), as shown in Figures 1 and 2” (30) 6 marks for definitions (KAA)  Define current account as (X-M) 2 marks  Explain components of the current account, e.g. trade in goods (2), trade in services (2)
  24. 24. “Assess the likely effects on the UK‟s current account of the balance of payments of changes in consumption, investment and the exchange rate (£), as shown in Figures 1 and 2” (30) 12 marks for explanation of consequences, (KAA) e.g.  Falling consumption might mean reduced demand for imports, which will improve the current account, (X-M) (4 marks)  Falling investment will mean falling UK productivity and hence a resultant loss of competitiveness and reduced export sales, as well as increased import penetration, so the current account will worsen. (4)  The fall in £ will improve UK price competitiveness, thus boosting export sales and reducing demand for imports. Thus the current account should improve. (4) In each case, back up your theory with extract use.
  25. 25. “Assess the likely effects on the UK‟s current account of the balance of payments of changes in consumption, investment and the exchange rate (£), as shown in Figures 1 and 2” (30) 12 marks for evaluation of consequences, „of which award 2 very well developed points 6 marks each or 3 consequences clearly given 4 marks each‟.
  26. 26. EVALUATION TIP This question is about the UK current account, so your evaluation must be linked to the current account to earn full credit. Evaluation which is linked to other, unrelated factors, will not earn marks. Tom Allen Head of Economics Eton College 26
  27. 27. “Assess the likely effects on the UK‟s current account of the balance of payments of changes in consumption, investment and the exchange rate (£), as shown in Figures 1 and 2” (30) Examples of evaluation: 1. Although UK consumption has fallen by 3% (as shown in Figure 1), it is possible that UK consumers might continue to purchase imports because they are necessities, e.g. imported food, or higher quality than their UK substitutes, e.g. electronic goods, so the trade position might not improve as hoped. (4 marks) Note that this evaluation discusses the impact of consumption upon trade.
  28. 28. “Assess the likely effects on the UK‟s current account of the balance of payments of changes in consumption, investment and the exchange rate (£), as shown in Figures 1 and 2” (30) 2. The 14% fall in UK investment shown in Fig. 1 may not have an effect on the UK export sector in the short run, but will have a greater long run impact, once the current stock of capital has depreciated (worn out). (4 marks) Note that this evaluation discusses the impact of investment upon trade.
  29. 29. “Assess the likely effects on the UK‟s current account of the balance of payments of changes in consumption, investment and the exchange rate (£), as shown in Figures 1 and 2” (30) 3. The fall in sterling has not produced the expected benefit to the UK‟s current position from 2010 onwards. This is perhaps because our main trading partners (EU, USA) are still suffering low growth and because the UK manufacturing sector is too small to satisfy increased demand. (4) Note that this evaluation discusses the impact of sterling upon trade.
  30. 30. Additional evaluation points  The change to consumption is likely to have the greatest effect of the 3 because consumption accounts for approximately 60% of A.D. (2 – 4 marks)  Other factors, such as a change to UK productivity or inflation or interest rates could also have an impact upon the UK‟s current account. Explain how. (4 marks)
  31. 31. Additional evaluation points  The change to consumption is likely to have the greatest effect of the 3 because consumption accounts for approximately 60% of A.D. (2 – 4 marks)  Other factors, such as a change to UK productivity or inflation or interest rates could also have an impact upon the UK‟s current account. Explain how. (4 marks)
  32. 32. 32 8 paragraphs for 30 marker Paragraph 1 Definitions 2 KAA for factor 1 3 Ev for factor 1 4 KAA for factor 2 5 Ev for factor 2 6 KAA for factor 3 7 Ev for factor 3 8 Justified conclusion
  33. 33. Past 30-markers Q.9 Q.10 Jun-09 Evaluate the use of supply- side policies to achieve economic growth. To what extent do demand-side policies lead to conflicts between macroeconomic objectives? Jun-10 Evaluate the likely effects of a recession on the UK economy. Evaluate 3 ways in which economic policy can be use to 'stimulate UK economic growth' Jan-11 Assess the effectiveness of supply-side measures to deal with problems outlined. Evaluate the likely effects on the current account of the given changes in C,I and £. Jun-11 Discuss the fiscal and supply side policies the UK Government could pursue to reduce unemployment. To what extent might rapid economic growth conflict with at least two other macro' objectives? Jan-12 Assess the impact of UK govt labour market policies on any 3 macro' objectives. Evaluate the likely impact of higher inflation on three macro objectives. Jun-12 Evaluate policies to reduce unemployment Evaluate benefits of economic growth to the UK economy Jan-13 Evaluate the effects of reducing the budget deficit, assuming growth remains weak Evaluate policies to raise living standards
  34. 34. 34 How to tackle „economy-wide‟ questions Such questions take the form: “How does….. impact upon the UK economy? (30) 1. Show how the economic concept mentioned in the question will, in theory, affect the AD/AS diagram. 2. Explain how this new equilibrium will impact upon the main macro objectives (see Slide 2), which are:
  35. 35. Tom Allen Head of Economics Eton College 35 Other areas to consider  The government‟s fiscal position  SR v LR considerations  The impact on different regions / sectors  Exceptions and evidence.
  36. 36. To score full marks you will need..  Several „explicit‟ references to the extracts.  Some reference to the UK economy, using your own knowledge.  Plenty of evaluation, throughout your answer (or 18/30 max).  A „final judgement‟ (conclusion). 36
  37. 37. 37 Low level v high level evaluation (1) Low Level A simple recognition of the advantages and disadvantages of a certain policy/effect. e.g. “increasing consumer expenditure should generate short-term growth but could prove inflationary” High Level Greater consideration of + and – e.g. “increasing consumer expenditure should generate short-term growth but could prove inflationary, especially as the economy approaches full capacity and factors of production become scarce and hence more expensive.”
  38. 38. 38 Y1 Y2 P1 P2 RNO GPL AD1 AD2 LRAS1 YFC DEMAND-PULL INFLATION
  39. 39. Tom Allen Head of Economics Eton College 39 Low level v high level (2) Low Level e.g. “supply-side policies should boost LR growth but are expensive to implement.” High Level e.g. “supply-side policies should boost LR growth but are expensive to implement, adding to the government‟s worryingly high £120bn budget deficit. In addition, Extract B line 14 casts doubts on the effectiveness of recent government training programmes. ” Tom Allen Head of Economics Eton College
  40. 40. 40 Advice to candidates now that scripts are marked online.  It is more important to write clearly and legibly.  Don‟t forget to write the part number of the question clearly in the left-hand margin.  If you think that you might wish to add to your answer later, leave enough space before you start the next part of the question. It won‟t matter if you don‟t use that space.
  41. 41. Tom Allen Head of Economics Eton College 41 Advice to candidates now that scripts are marked online cont…..  Make sure that you leave at least 2 blank lines between each part of the question. Don‟t allow parts of diagrams or inserted words to stray into that space.  Don‟t refer to diagrams, or other material, used in other parts of the question. If the diagram is helpful, you will have to draw it again. Tom Allen Head of Economics Eton College
  42. 42. TIMING on UNIT 2 Question value Minutes 4 4 6 6 8 10 10 12 12 14 30 35
  43. 43. Tom Allen Head of Economics Eton College 43 General Tips  ANSWER THE QUESTION IN FRONT OF YOU – not the one that you would like it to be.  Don‟t go onto autopilot – this is a data response test, not one of memory recall.  Pick the right question – ensure no ambiguity over the last question.
  44. 44. Would you practise for…  A driving test?  A sports match? How? By simulating test or match conditions So – do the same for exams. Practice does make perfect.

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