Macro 15m for Gabe Xx Exam With Complete Solutions 2024

Macro 15Macro 15m for Gabe Xx Exam With Complete Solutions 2024 Price stability relates to an absence of volatility in the inflation rate. In the UK the Bank of England is charged with the responsibility of achieving price stability by ensuring the inflation rate remains around 2% over the medium term. Unemployment relates to the number of people who are willing and able to work at existing wages rates but cannot find a job. LRAS DIAGRAM AD out As the economy grows from y1 to y1 there will likely be a fall in unemployment as the demand for labour derives from the demand for goods and services. Falling unemployment will likely mean that the resource which is labour becomes increasingly scare which in turn, will lead an increase in the bargaining power of workers allowing them to bid up their wages. As a result, firms will have higher costs of production which will in turn be passed onto consumers in the form of higher prices (p1 to p2). - correct answer-Explain why a trade off between price stability and low unemployment might occur. 9m The scheme provided grants to employers so they could retain and continue to pay staff during coronavirus related lockdowns, by furloughing employees at up to 80% of their wages 1. Without the furlough scheme, workers who were not needed due to the decline in output caused by the pandemic would have become unemployed as the firm would still need to pay them wages yet they're not producing output - unit labour costs rise, SRAS in - as a result, lose connection to the roles they had before pandemic and lose skills aka hysteresis and become less productive if they join work again - where long term unemployment may result in the deskilling and loss of motivation of workers - less willing to supply their labour and firms are less willing to demand their labour due to deskilling - rise in structural u/e. - correct answer-Explain why the long term performance of the economy would have been damaged in the absence of the furlough scheme 9m QE= expansionary monetary policy to stimulate AD 1 - Central Bank electronically creates money - add money to own balance sheet 2 - Use this money to buy assets such as government bonds (gilts) 3 - Increased demand for UK gilts and therefore price goes up 4 - Rise in price of bonds lowers the yield on government bonds 5 - This makes institutions like pension funds and insurance companies who hold lots of gov. bonds look elsewhere i.e. To different asset classes so they, for example, switch some of their portfolio into shares (equities) or property which boosts the prices of these assets 6 - this creates a positive wealth effect so people spend more + AD out - correct answer-How does QE work 9m A developed country is one where there is relatively high GDP per capita and low levels of poverty. 1. increased levels of investment - Providing international aid to less developed countries will 'provide finance' that can help to plug the 'savings gap'. As a result, LEDCs will have more savings that can be used as a source of funding for banks to lend to those who need to borrow to finance capital projects. As a result, both short run and long run growth in LEDCs will increase, leaving them with higher real disposable incomes 2. Growth in LEDCs = new trading opp. with other countries - rising incomes will mean more money spent on imported goods. As there is more demand for the exports (net imports is a component of aggregate demand) of developed countries, unemployment will likely fall as AD shifts right (AD to AD1), as the demand for labour derives from the demand for goods and services. Thus more people will be - correct answer-Explain how giving international aid may eventually boost the income of developed countries 9m Although the UK inflation rate appears to be falling it currently remains well above its 2% target, at c.10%. 1. if brought about by cost-push inflationary factors. e.g. , Russia's invasion of Ukraine led to a sudden spike in the price of key raw materials, such as oil and gas. Moreover, bottlenecks in the global supply chain resulting from COVID have also forced up the prices of finished and semi-finished goods which the UK is required to import. There may also be higher costs for UK firms arising from additional red-tape when engaging in trade with countries in the EU as a result of Brexit. Each of these factors combined, will force up UK firms' costs of production which they in turn will pass on to consumers in the form of higher prices (P1 to P2) (insert SRAS shifting left) which in turn will lead to a contraction in AD and a squeeze on real disposable incomes. This will negatively impact households' material l - correct answer-Explain why the UK economy may experience both recession and inflation simultaneously (15 marks) Investment is spending by firms on capital goods. It comprises between 10-15% of AD in the UK and is the most volatile component of AD. m for Gabe Xx Exam With Complete Solutions 2024