A2 econ session 5

PowerPoint Presentation

Session 5Current UK Policies46

A Level Economics Year 2 (A2) Revision WorkshopSession Outline46Taking the pulse of the UK and EU economiesAssessing the health of the global economy, and its impact on the UKUK macroeconomic policiesEconomic policies exam questions

A Level Economics Year 2 (A2) Revision WorkshopMeasuring the economy basic indicators46

2.6%5.1%0.3%2.7bndeficit4.3%0.7%3bndeficit2.0%Will these figures be higher or lower in 2016?Do you think the EU figures were higher or lower than the UKs in 2015?10.4%0.3%41.4bnsurplus1.5%9.6%0.5%18.1bnsurplus1.2%Do you expect these figures to be higher or lower in the EU in 2016?

A Level Economics Year 2 (A2) Revision WorkshopMeasuring the economy additional indicators46

88.6%-4.4%0.325Will these figures be higher or lower in 2016?86.9%-4.1%0.37Do you expect these figures to be higher or lower in the EU in 2016?Do you think the EU figures were higher or lower than the UKs in 2015?93.5%-2.2%0.3195.0%-2.1%0.3

A Level Economics Year 2 (A2) Revision WorkshopMeasuring the economy even more! 46

1.4%0.5%-4%0%ConsumerBusiness4.4%UK: 2005 = 100 90.72.1%0.75%-1.9%0.7%4.5%76.2Describe the UK trend-0.29%0.05%0.07%-9%12.8%86.2-0.16%0.05%0.25%-5.3%11.8%89.2Describe the EU trendEU: 1990 = 100

A Level Economics Year 2 (A2) Revision WorkshopUK economic outlook from PWC47

A Level Economics Year 2 (A2) Revision WorkshopVideo: https://www.youtube.com/watch?v=xIXGvy-DkaY 6

UK economic outlook from PWCHeadwinds:SLOWDOWN IN CHINA, PROBLEMS IN RUSSIA AND BRAZIL

Factors that are offsetting the headwinds:LOW OIL PRICES, RISING EMPLOYMENT AND EARNINGS GROWTH

Why might interest rates be back at around 3% by 2020?CONTINUED ECONOMIC GROWTH AND INFLATION RISING BACK TOWARDS TARGET

A Level Economics Year 2 (A2) Revision WorkshopUK economic outlook from PWCWhy is the rate of increase in consumer spending expected to slow down?RECOVERY IN THE SAVINGS RATIO

How is the pattern of consumer spending expected to change over the coming years?MORE SPENDING ON HOUSING, UTILITIES AND LEISURE; LESS ON CLOTHING AND FOODS

How is the pattern of UK exports expected to change?CONTINUED DECREASE IN EXPORTS TO THE EU (TO AROUND 37%); RISE IN EXPORTS TO EMERGING MARKETS (TO AROUND 13%)

A Level Economics Year 2 (A2) Revision Workshop3 big concerns in the global economy47

A Level Economics Year 2 (A2) Revision WorkshopChanges in the global economy and the UK47

Reduced inflation in China therefore cheaper imports; less rapid growth in CO2 emissions in China; less global demand for commodities therefore raw material prices may fall Reduction in Chinese demand for UK exports (finance, tourism); reduction in availability of Chinese products / manufactures; trigger another global recessionCan you think of three advantages and three disadvantages for the UK?


Can you think of three advantages and three disadvantages for the UK? Less bureaucracy / regulation / red tape for businesses; better control of borders; negotiate our own trade agreements; reduction in govt spending on EU membership EU is a major export partner and the value of UK exports may fall; expensive & lengthy renegotiation process for trade deals; loss of political security


Can you think of three advantages and three disadvantages for the UK? greater access to a variety of markets; good for our weapons / military / satellite export industries; less influence by the US (and China) on global policy Reduction in business and consumer confidence which could reduce trade and growth; disruption to supply chains; higher insurance costs.

A Level Economics Year 2 (A2) Revision Workshop

48


48

A Level Economics Year 2 (A2) Revision WorkshopGlobal labour force participation rates

48

A Level Economics Year 2 (A2) Revision WorkshopGlobal economy snapshot48

Fall in commodity & oil prices slowing growth to 3.7%BUT: political / institutional constraints prevent higher growth`Domestic demand is risingAND: investment and productivity set to rise over next decadeChinese annual growth down to 3.7%BUT: India and SE Asia are growing but not by much more than China Hit hard by fall in price of commodities & oilAND: informal sector too large, investment too lowStrong domestic demand GDP up by 2% in 2016BUT: profits threatened by higher int. rates & rising labour costs

A Level Economics Year 2 (A2) Revision WorkshopData exam tips48

A Level Economics Year 2 (A2) Revision WorkshopPolicies - overview48FiscalAny policy relating to govt spending, tax and/or borrowingAffects AD but can affect AS, depending on the nature of govt spending and tax policyMonetary Any policy relating to interest rates, exchange rate and/or money supplyAffects AD but can affect AS if investment is affectedSupply SideAny policy leading to an increase in the quantity or quality of factors of productionAffects AS but can affect AD if I or G increases

A Level Economics Year 2 (A2) Revision WorkshopUK fiscal policies (Budget 2015 and 2016)Borrowing Reduce deficit by 1.1% per yearRun a budget surplus of 10.4bn by 2019-202National debt to 68.5% of GDP by 2020-21TaxationRaise the personal allowance to 11,500 by April 2017Cut corporation tax (17% by 2020)40% tax rate at 45,000 by April 2017Sugar Tax to raise 520m annuallyGovernment Spending Increase spending on NHS & defenceCut 12bn from welfare spendingFree childcare for 30 hoursSpending down to 39.5% of GDP by 36.9%48

A Level Economics Year 2 (A2) Revision WorkshopUK government spending 2015-201648

A Level Economics Year 2 (A2) Revision WorkshopUK government revenue 2015-201648

A Level Economics Year 2 (A2) Revision WorkshopUK fiscal policies more depth48Increased personal allowanceReward work & dis-incentivise benefits Was 6,475 in 2010 Moving to 11,00 in April 2016 and 11,500 in April 2017 Aiming for no tax on 30hrs at the NMWLower corporation taxNow 20% for large and small businessesAiming for 17% by 2020Also, companies must pay tax closer to the date they earn profitsBank profits taxBalance the possible costs of this risky sector against UK competitivenessNew tax of 8% on bank profits in addition to corporation tax


22

Key elements of UK monetary policy48

A Level Economics Year 2 (A2) Revision WorkshopMonetary policy48Attempts to pre-warn businesses and consumers about interest rate and QE decisionsForward Guidance

Aided by transparency e.g. publication of MPC minutesInflation TargetingEstablished April 2013Identifies and monitors risks in the financial system (stress tests)

Financial Policy Committee

A Level Economics Year 2 (A2) Revision WorkshopWhy is labour market policy needed?48

A Level Economics Year 2 (A2) Revision WorkshopVideo: https://www.youtube.com/watch?v=jkzvNj_AEO4 25

Labour markets policy48

A Level Economics Year 2 (A2) Revision WorkshopInternational policy48

A Level Economics Year 2 (A2) Revision WorkshopSupply side policies48Northern PowerhouseCrossrail 2 / Elizabeth LineFixing the Foundations30 hours childcareRaising school leaving ageModern ApprenticeshipsEnterprise ZonesMidlands Engine for GrowthRaising Personal AllowanceReducing corporation tax ratesR&D Tax CreditsHelp to BuyRoads FundDigital Economy CentresNational Living Wage

A Level Economics Year 2 (A2) Revision WorkshopUK Productivity

48

A Level Economics Year 2 (A2) Revision WorkshopSupply side policy48

A Level Economics Year 2 (A2) Revision WorkshopEssay Technique Tips49


Focus on the impact on macro objectives e.g. economic growth, unemployment, inequalityDiscuss the likely effects of raising the personal allowance to 11,500 from 10,800 in April 201749

A Level Economics Year 2 (A2) Revision WorkshopDiscuss the likely effects of raising the personal allowance to 11,500 from 10,800 in April 201749

Raising the tax-free allowance could cause unemployment to fall even furtherAllowance increased from around 6500 in 2010 to 11500 in April 2017; unemployment has fallen over that time tooPeople in work keep more of their income, therefore spend more due to having a high MPC, so AD rises, increasing demand for labour

Furthermore, the unemployed are incentivised to work because income from work is higher relative to income from benefits especially true due to cuts in welfare payments.AD / AS diagram, showing rightward shift in AD, leading to rising real GDP and a move closer to the full employment level of output

A Level Economics Year 2 (A2) Revision WorkshopDiscuss the likely effects of raising the personal allowance to 11,500 from 10,800 in April 201749

Increase of just 700 too small to alter incentives to work, therefore unemployment may be unchanged (although this small change comes after some huge changes)Unemployment is unlikely to be voluntary despite the incentive of higher pay, the unemployed may be occupationally or geographically immobile and unable to access available jobs, so unemployment may be unchangedFor those already in work, the additional 700 of income may be spent on leakages from the circular flow e.g. imports or savings, and therefore not stimulate demand for labourSuch a small change in the personal allowance is unlikely to have much impact on unemploymentEXAM TIP notice how the evaluation points are all SPECIFICALLY related to unemployment


This needs explaining e.g. one-size fits all, asymmetric inflation target (

Education

A2 econ session 5