A2 ECONOMICS: Guess Paper-4

[mariam_anwar]

I will try my level best to help you out up to the extent, I have the knowledge and experience.

Thaaannkk yeww

 

[mariam_anwar]

Sir do you teach business studies ??

 

[Sjs1993]

Any guesses for essay questions for Econ p4?

 

[mariam_anwar]

1. In 2006 it was reported that a country’s unemployment rate had remained steady
and that its central bank, through its interest rate policy, had prevented an increase in inflation despite a sharp rise in oil prices.
(a) Explain what might cause unemployment. [12]
(b) Discuss how interest rate policy might prevent a rise in inflation. [13]

For (a) we will first define the term unemployment .. then all the voluntary and involuntry (equilibrium/disequilibrium) unemployment (cyclical,real wage, frictional,structural,technological,seasonal,residual) with diagrams ...
For (b) Firstly explain the interest rate policy with diagram .. And also the link between these too .. (Can draw inflationary diagram and explain a bit )
High Interest rate is the situation uncertain for consumers as now they will be more attracted towards saving and less borrowing and spending. due to this producers may stop producing as aggregate demand has fallen so producers may find unprofitable to produce and will try to sell more by reducing prices. Due to High interest rates now as people borrow less money so they will invest less as well in this way the money supply will shrinkin order to equal the demand for money.
Increasing the Interest Rate will attract the hot money flows, possibly causing an appreciation in the exchange.
On the other hand by controlling inflation country may has to face the problem of unemployment , it may also add to the production cost, High Interest rate will discourage investment and hence long term growth and lastly attract hot-money flows, driving up the exchange rate- making exports uncompetitve and imports cheaper .
However interest rate policy can prevent the problem of inflation but had to face the ultimate conequence as well .

(Sir Is this ans right ??)

 

[mariam_anwar]

Sir Qamar this question was easy please post the difficult question first

 

[Qamar Baloch]

Thaaannkk yeww

welcome dear.

 

[Qamar Baloch]

Sir do you teach business studies ??

No dear. For A levels I teach only economics.

 

[Qamar Baloch]

For (a) we will first define the term unemployment .. then all the voluntary and involuntry (equilibrium/disequilibrium) unemployment (cyclical,real wage, frictional,structural,technological,seasonal,residual) with diagrams ...
For (b) Firstly explain the interest rate policy with diagram .. And also the link between these too .. (Can draw inflationary diagram and explain a bit )
High Interest rate is the situation uncertain for consumers as now they will be more attracted towards saving and less borrowing and spending. due to this producers may stop producing as aggregate demand has fallen so producers may find unprofitable to produce and will try to sell more by reducing prices. Due to High interest rates now as people borrow less money so they will invest less as well in this way the money supply will shrinkin order to equal the demand for money.
Increasing the Interest Rate will attract the hot money flows, possibly causing an appreciation in the exchange.
On the other hand by controlling inflation country may has to face the problem of unemployment , it may also add to the production cost, High Interest rate will discourage investment and hence long term growth and lastly attract hot-money flows, driving up the exchange rate- making exports uncompetitve and imports cheaper .
However interest rate policy can prevent the problem of inflation but had to face the ultimate conequence as well .

(Sir Is this ans right ??)

Its nice to see you effort. our concepts are very good. Your scheme for (a) is really very nice as we need to define the main terminology used question first then we go forward to hit the target. But as well as (b) is concerned you must explain the conflicts at the end. High Interest rate is the situation uncertain for consumers as now they will be more attracted towards saving and less borrowing and spending. due to this producers may stop producing as aggregate demand has fallen so producers may find unprofitable to produce and will try to sell more by reducing prices. This statement shows a conflict which arises due to changes in interest rate. First of all explain the extent to which interest rate policy is effective then come to the conflicts. Then conclusion. However, you have knowledge about things. Well done and keep this spirit up!

 

[Qamar Baloch]

Hi dear students I am posting the second question. Try to solve it at the end I will also send you complete answers in attachment.

 

[Qamar Baloch]

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]

 

[bboi3294]

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.

Thank you for the question
I hope my answer does answer the question

 

[Sjs1993]

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)
Investment is described as acquisition of capital goods designed to provide us with consumer goods and services in the future.
Several factors influence how much businesses are prepared to commit to investment projects:
Interest rates affect the cost of borrowing money to finance investment. If the rate of interest increases, the cost of funding investment increases, reducing the expected rate of return on capital projects. A second factor is that higher interest rates raise the opportunity cost of using profits to finance investment – i.e. a business might decide that the cost of financing new capital is too high and that it could earn a higher rate of return by simply investing the cash. Low interest rates are not always good news for business investment.
Marginal efficiency of labor theory implies that there exists an inverse relationship between interest rates and investments in an economy. The rate of return on an investment project is also called the MEC of the project. A profit maximizing firm will invest in a project if the rate of return is greater than or equal to the interest rate which is the cost of borrowing or the opportunity cost of investment. At lower interest rates, more capital projects will become financially viable because the cost of borrowing to finance these projects is lower.
Investment tends to be stronger when consumer demand is rising, giving businesses an extra incentive to invest to expand their capacity to meet this demand. Higher expected sales also increase potential profits – in other words, the price mechanism should allocate extra funds and factor inputs towards investment goods into those markets where consumer demand is rising.
Corporation tax is paid on profits. If the government reduces the rate of corporation tax (or increases investment tax-allowances) there is a greater incentive to invest.
In markets where technological change is rapid, companies may have to commit themselves to higher levels of investment to keep pace with the shifting frontier of technology and remain competitive. In markets where there is a premium on a business keeping costs down but at the same time, achieving year on year gains in efficiency and quality of service, there is also an incentive to keep capital investment spending high.
Business confidence can be vital in determining whether to go ahead with an investment project. When confidence is strong then planned investment will rise. If an investor is optimistic about the future growth of the economy, more investment will be encouraged as the rising demand will need to be met in the future.

 

[Qamar Baloch]

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.

Thank you for the question
I hope my answer does answer the question

Ok good effort. Keep it up!
I have provided answers for data response question to many students. If you are still unable to recieve those then contact me on my email ID. Thank you.
Keep up your effort. I will also provide you the complete answers for all questions InshaAllah.

 

[Qamar Baloch]

Ok dear nice. Keep it up! You have provided a detailed answer.

 

[Qamar Baloch]

Hi dear students, I am going to post the third question. Keep in mind that the statement of question might not be revised but the same material and question will be asked in different wording.

 

[queensunflower]

Sir Qamar, please explain how changes in reserve ratio can be used to control inflation. Also please give a brief definition of moral persuasion.

 

[Qamar Baloch]

Q.1
In 2006 it was reported that a country’s unemployment rate had remained steady
and that its central bank, through its interest rate policy, had prevented an
increase in inflation despite a sharp rise in oil prices.

(a) Explain what might cause unemployment. [12]

(b) Discuss how interest rate policy might prevent a rise in inflation. [13]

 

[Qamar Baloch]

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]

 

[Qamar Baloch]

Q.3
Discuss how far the GDP figure might be used to determine whether one country
has higher living standards than another. [25]

 

[Qamar Baloch]

Q.4
Airbus, a large aircraft manufacturing company, announced in 2007 that its goal
was to increase its $475 million research budget by 25 % in order to try to develop
a more environmentally friendly aircraft that had lower fuel consumption.

(a) Explain why Airbus is likely to be in an imperfect rather than a perfect market
structure. [10]

(b) Economics textbooks sometimes criticise firms in imperfect competition as being
against the public interest. What does this mean, and how far does the Airbus
announcement prove the textbooks wrong? [15]