Thursday 31 May 2012
Goodbye to the best Year group...Year 13
I will miss all my Year 13s so just want to post this saying they are the best group of students i have EVERRR taught! (especially Michael) but yeah, that's about it. I love them all so good luck and farewell!!!
Tuesday 29 May 2012
Unit 3: Game theory - The Ultimatum Game
What can The Ultimatum Game tell us about how people cooperate?
Sometimes games have a lot to teach us about human nature, other times they're just games.
One game that some economists and psychologists claim has much to teach us is called The Ultimatum Game.
The game is very simple. It's played between two people who have to decide how to split an amount of money. Let's say it's $100.
One of the two people is randomly chosen to make an offer to the other about how to split the money between them. If the other person accepts this offer then they split it on that basis. But, if the other person rejects it, neither of them gets anything.
That's it.
The reason some economists and psychologists have got excited about it is because of how people behave when they play this game. What you find is that most people make offers of splitting the cash somewhere between 40% and 50%. Generally speaking if an offer is made below about 30% it will be rejected by the other person more often than not.
The Ultimatum Game has been pointed to as a way of showing that humans are economically irrational. Why do people reject an offer of 25% of the total pot? If the pot is $100 then they are choosing between getting $25 or nothing at all. So why do they choose nothing at all?
The answer seems to be that people generally find offers below 30% to be insulting. It's insulting that the other person should suggest such a derisory sum, even when it's free money. So they prefer to have nothing and punish the other person's greed. And remember the other person is losing $75 in this case whereas I'm only losing $25.
To the economist what players in the simplest version of this game are forgetting is that it's a one-shot deal. It doesn't matter if you aren't fair, because the other person can't get back at you. All you need to do is work out the minimum offer that's likely to be accepted.
So really what the Ultimatum game is showing is that most people act fairly, or at least want others to see them acting in a fair way. In addition, any unfair behaviour is punished by the recipient of the offer.
Only an economist would argue that this is evidence of human irrationality. Acting fairly, or at least appearing to act fairly is a highly rational custom in a society in which we have to work together. Cheats, as they say, do not prosper.
So does The Ultimatum Game really tell us anything about human nature or is just further proof of how difficult it is to model human behaviour?
The optimist might say it tells us that people are mostly just and fair--or at least want to appear that way.
The pessimist, though, might say that people are being selfish because they have to make a judgement, consciously or not, about what offer will be accepted. Remember that it's in the offerer's interests to have his offer accepted or he won't get any money at all.
What it certainly shows is how many psychological complexities can be drawn out of a very simple game like this.
Monday 28 May 2012
Unit 4: Greek currency crisis.
Here’s a good one for the end of the week regarding the possible outcome(s) of the € currency crisis. It is also an excellent revision tool. Click here to a Guardian interactive page is very helpful.Thursday 24 May 2012
Unit 4: Productivity and working hours
A special thank you to Mr Barfoot (Pictured) for finding this article.....
Click here to access a link which shows the hours worked in countries of the world.
Do you work a lot or a little? Type in your hours, and it will tell you how you compare with the average employee in your own country, and the average across 34 developed nations.
Interesting for productivity and flexible working hours questions. Interestingly, employees in Greece work way above the developed world average, whilst Germany, one of the strongest economies in the world, works the least!
Click here to access a link which shows the hours worked in countries of the world.
Do you work a lot or a little? Type in your hours, and it will tell you how you compare with the average employee in your own country, and the average across 34 developed nations.
Interesting for productivity and flexible working hours questions. Interestingly, employees in Greece work way above the developed world average, whilst Germany, one of the strongest economies in the world, works the least!
Unit 4: How would you 'Save the World'?
Five top development economists including 4 Nobel Laureates were asked how they would best spend $75 billion to improve human welfare especially in developing countries and the list below is what they came up with in order of priority.
1. Bundled interventions to reduce undernutrition in preschoolers (to fight hunger and improve education)
2. Expanding the subsidy for malaria combination treatment
3. Expanded childhood immunization coverage
4. Deworming of schoolchildren, to improve educational and health outcomes
5. Expanding tuberculosis treatment
6. R&D to increase yield enhancements, to decrease hunger, fight biodiversity destruction, and lessen the effects of climate change
7. Investing in effective early warning systems to protect populations against natural disaster
8. Strengthening surgical capacity
9. Hepatitis B immunization
10. Using low‐cost drugs in the case of acute heart attacks in poorer nations (these are already available in developed countries)
11. Salt reduction campaign to reduce chronic disease
12. Geoengineering R&D into the feasibility of solar radiation management
13. Conditional Cash Transfers for School Attendance
14. Accelerated HIV Vaccine R&D
15. Extended field trial of information campaigns on the benefits of schooling
16. Borehole and public hand-pump intervention
1. Bundled interventions to reduce undernutrition in preschoolers (to fight hunger and improve education)
2. Expanding the subsidy for malaria combination treatment
3. Expanded childhood immunization coverage
4. Deworming of schoolchildren, to improve educational and health outcomes
5. Expanding tuberculosis treatment
6. R&D to increase yield enhancements, to decrease hunger, fight biodiversity destruction, and lessen the effects of climate change
7. Investing in effective early warning systems to protect populations against natural disaster
8. Strengthening surgical capacity
9. Hepatitis B immunization
10. Using low‐cost drugs in the case of acute heart attacks in poorer nations (these are already available in developed countries)
11. Salt reduction campaign to reduce chronic disease
12. Geoengineering R&D into the feasibility of solar radiation management
13. Conditional Cash Transfers for School Attendance
14. Accelerated HIV Vaccine R&D
15. Extended field trial of information campaigns on the benefits of schooling
16. Borehole and public hand-pump intervention
Tuesday 22 May 2012
Unit 3: Introduction to Game Theory
Here is an “Introduction to Game Theory” lecture, which offers a broad introduction to the field, with some exercises to do at the end. (The yellow-underlined text hyperlinks out to other resources).
The document can be downloaded below:
A little joke to finish.....
The document can be downloaded below:
Game Theory - An Introduction (2009)
View more presentations from mattbentley34.
A little joke to finish.....
Unit 3: Game Theory
Game theory is mainly concerned with predicting the outcome of games of strategy in which the participants (for example two or more businesses competing in a market) have incomplete information about the others’ intentions. This revision blog looks at some of the ways in which game theory can be applied to business economics decisions.
Here are some recent examples of game theory in action:
* Panic buying of fuel ahead of a tanker driver strike (2012)
* London bus drivers threaten strikes during the Olympics (2012)
* Central banks intervene in currency markets: What are currency wars?
* Over-fishing of the oceans (tragedy of the commons): Overfishing ‘costs EU £2.7bn each year’
* Doping in professional sports: The race to keep up with blood doping sports cheats
* Supermarket petrol price war (May 2012)
* Competition between London’s free newspapers
* Decisions by airlines about whether to levy fuel surcharges when world oil prices rise (collusion fines for BA and others)
* Solar panel trade wars (May 2012)
Game theory analysis has direct relevance to the study of the conduct and behaviour of firms in oligopolistic markets – for example the decisions that firms must take over pricing and levels of production, and also how much money to invest in research and development spending.
Costly research projects represent a risk for any business – but if one firm invests in R&D, can a rival firm decide not to follow? They might lose the competitive edge in the market and suffer a long term decline in market share and profitability.
The dominant strategy for both firms is probably to go ahead with R&D spending. If they do not and the other firm does, then their profits fall and they lose market share. However, there are only a limited number of patents available to be won and if all of the leading firms in a market spend heavily on R&D, this may ultimately yield a lower total rate of return than if only one firm opts to proceed.
The Prisoners’ Dilemma
The classic example of game theory is the Prisoners’ Dilemma, a situation where two prisoners are being questioned over their guilt or innocence of a crime.
They have a simple choice, either to confess to the crime (thereby implicating their accomplice) and accept the consequences, or to deny all involvement and hope that their partner does likewise.
The “pay-off” is measured in terms of time spent in prison arising from their choices and this is summarised in the table below.
(Acknowledgede source: Mo Tanweer,2009)
No communication is permitted between the two suspects – in other words, each must make an independent decision, but clearly they will take into account the likely behaviour of the other when under-interrogation.
Nash Equilibrium
A Nash Equilibrium is an idea in game theory – it describes any situation where all of the participants in a game are pursuing their best possible strategy given the strategies of all of the other participants. In a Nash Equilibrium, the outcome of a game that occurs is when player A takes the best possible action given the action of player B, and player B takes the best possible action given the action of player A
Applying the Prisoner’s Dilemma to business decisions
Game theory examples revolve around the pay-offs that come from making different decisions. In the classic prisoner’s dilemma the reward to defecting is greater than mutual cooperation which itself brings a higher reward than mutual defection which itself is better than the sucker’s pay-off.
Critically, the reward for two players cooperating with each other is higher than the average reward from defection and the sucker’s pay-off.
Consider this example of a simple pricing game: The values in the table refer to the profits that flow from making a particular decision.
• Display of payoffs: row first, column second e.g. if Firm A chooses a high output and Firm B opts for a low output, Firm A wins £12m and Firm B wins £4m.
• In this game the reward to both firms choosing to limit supply and thereby keep the price relatively high is that they each earn £10m. But choosing to defect from this strategy and increase output can cause a rise in market supply, lower prices and lower profits - £5m each if both choose to do so.
• A dominant strategy is a strategy that is best irrespective of the other player’s choice. In this case the dominant strategy is competition between the firms.
The Prisoners’ Dilemma can help to explain the break down of price-fixing agreements between producers which can lead to the out-break of price wars among suppliers, the break-down of other joint ventures between producers and also the collapse of free-trade agreements between countries when one or more countries decides that protectionist strategies are in their own best interest.
The key point is that game theory provides an insight into the interdependent decision-making that lies at the heart of the interaction between businesses in a competitive market.
Some strategies in the Prisoners’ Dilemma (for repeated games)
* Always defect.
* Always cooperate.
* Tit for Tat: On the first encounter cooperate; thereafter do what the other player did last time.
* Massive retaliation: Cooperate until the other player defects; thereafter always defect.
* Tit for Two Tats: Forgive a single defection; strike back once after two in a row.
* Two Tits for a Tat:Defect twice following a defection by the other side.
* Sneaky: Normally play TIT FOR TAT, but try to sneak in a defection now and then.
* Opportunist Tit for Tat: Play TIT FOR TAT unless the other player appears to be unresponsive; then always defect.
* Random: Choose between defection and cooperation randomly.
Game Theory and Climate Change
Can repeated games of the prisoner’s dilemma help climate negotiations? With 2012 signalling the expiry date of the Kyoto Protocol, there is an urgent need for a successor treaty to tackle the ever-increasing global emissions problem.
The main issue with tackling climate change is the cost to countries of implementing it. To be successful it will need profound transformation of energy and transport organisations, and changes in the behaviours of billions of consumers. The Stern Review admitted that it will likely cost 1% of GDP –even though it doesn’t seem much, it is double the amount currently spent on development aid worldwide.
The issue here is how countries can expect to make cuts in emissions when their economic competitors refuse. This in turn leads to the Tragedy of the Commons which occurs when a group’s individual incentive lead them to take actions which, overall, lead to negative consequences for all group members. A country that refuses to act, whilst the other cooperates, will experience a free-rider benefit - enjoying the advantage of limited climate change without the cost. On the flip side, any country that imposes limits, when its competitors do not, incurs not just the cost of limiting its own emissions, but also a further cost in terms of reduced competitiveness
The dynamics of the prisoner’s dilemma do change if participants know that they will be playing the game more than once. In 1984 an American political scientist at the University of Michigan, Robert Axelrod, argued that if you play the game repeatedly you are likely to see emerging is cooperative rather than defective actions.
He identified four elements to a successful strategy which is this case can be applied to climate negotiations:
1. Be Nice – sign up to unilateral cuts in emissions, as deep as your economy and financing capacity allows.
2. Be Retaliatory – single out countries that have not commenced action and, in collaboration, find ways of pressurising them until they do so.
3. Be Forgiving - when non-compliant countries come onboard give them generous applause; signal that good behaviour will be rewarded with even deeper cuts in your own emissions.
4. Be Clear - let everyone know in advance exactly how you are going to behave – that you will work with them if they take action on emissions, and that you will retaliate if they do not.
Repeated Prisoner’s Dilemma provides valuable insight into how countries should act away from the negotiating table and over the longer term. Ultimately, for the planet’s sake, one hopes that everyone will play the game
Source: Mark Johnston, EconoMax, December 2007
Here are some recent examples of game theory in action:
* Panic buying of fuel ahead of a tanker driver strike (2012)
* London bus drivers threaten strikes during the Olympics (2012)
* Central banks intervene in currency markets: What are currency wars?
* Over-fishing of the oceans (tragedy of the commons): Overfishing ‘costs EU £2.7bn each year’
* Doping in professional sports: The race to keep up with blood doping sports cheats
* Supermarket petrol price war (May 2012)
* Competition between London’s free newspapers
* Decisions by airlines about whether to levy fuel surcharges when world oil prices rise (collusion fines for BA and others)
* Solar panel trade wars (May 2012)
Game theory analysis has direct relevance to the study of the conduct and behaviour of firms in oligopolistic markets – for example the decisions that firms must take over pricing and levels of production, and also how much money to invest in research and development spending.
Costly research projects represent a risk for any business – but if one firm invests in R&D, can a rival firm decide not to follow? They might lose the competitive edge in the market and suffer a long term decline in market share and profitability.
The dominant strategy for both firms is probably to go ahead with R&D spending. If they do not and the other firm does, then their profits fall and they lose market share. However, there are only a limited number of patents available to be won and if all of the leading firms in a market spend heavily on R&D, this may ultimately yield a lower total rate of return than if only one firm opts to proceed.
The Prisoners’ Dilemma
The classic example of game theory is the Prisoners’ Dilemma, a situation where two prisoners are being questioned over their guilt or innocence of a crime.
They have a simple choice, either to confess to the crime (thereby implicating their accomplice) and accept the consequences, or to deny all involvement and hope that their partner does likewise.
The “pay-off” is measured in terms of time spent in prison arising from their choices and this is summarised in the table below.
(Acknowledgede source: Mo Tanweer,2009)
No communication is permitted between the two suspects – in other words, each must make an independent decision, but clearly they will take into account the likely behaviour of the other when under-interrogation.
Nash Equilibrium
A Nash Equilibrium is an idea in game theory – it describes any situation where all of the participants in a game are pursuing their best possible strategy given the strategies of all of the other participants. In a Nash Equilibrium, the outcome of a game that occurs is when player A takes the best possible action given the action of player B, and player B takes the best possible action given the action of player A
Game theory examples revolve around the pay-offs that come from making different decisions. In the classic prisoner’s dilemma the reward to defecting is greater than mutual cooperation which itself brings a higher reward than mutual defection which itself is better than the sucker’s pay-off.
Critically, the reward for two players cooperating with each other is higher than the average reward from defection and the sucker’s pay-off.
Consider this example of a simple pricing game: The values in the table refer to the profits that flow from making a particular decision.
• Display of payoffs: row first, column second e.g. if Firm A chooses a high output and Firm B opts for a low output, Firm A wins £12m and Firm B wins £4m.
• In this game the reward to both firms choosing to limit supply and thereby keep the price relatively high is that they each earn £10m. But choosing to defect from this strategy and increase output can cause a rise in market supply, lower prices and lower profits - £5m each if both choose to do so.
• A dominant strategy is a strategy that is best irrespective of the other player’s choice. In this case the dominant strategy is competition between the firms.
The Prisoners’ Dilemma can help to explain the break down of price-fixing agreements between producers which can lead to the out-break of price wars among suppliers, the break-down of other joint ventures between producers and also the collapse of free-trade agreements between countries when one or more countries decides that protectionist strategies are in their own best interest.
The key point is that game theory provides an insight into the interdependent decision-making that lies at the heart of the interaction between businesses in a competitive market.
Some strategies in the Prisoners’ Dilemma (for repeated games)
* Always defect.
* Always cooperate.
* Tit for Tat: On the first encounter cooperate; thereafter do what the other player did last time.
* Massive retaliation: Cooperate until the other player defects; thereafter always defect.
* Tit for Two Tats: Forgive a single defection; strike back once after two in a row.
* Two Tits for a Tat:Defect twice following a defection by the other side.
* Sneaky: Normally play TIT FOR TAT, but try to sneak in a defection now and then.
* Opportunist Tit for Tat: Play TIT FOR TAT unless the other player appears to be unresponsive; then always defect.
* Random: Choose between defection and cooperation randomly.
Game Theory and Climate Change
Can repeated games of the prisoner’s dilemma help climate negotiations? With 2012 signalling the expiry date of the Kyoto Protocol, there is an urgent need for a successor treaty to tackle the ever-increasing global emissions problem.
The main issue with tackling climate change is the cost to countries of implementing it. To be successful it will need profound transformation of energy and transport organisations, and changes in the behaviours of billions of consumers. The Stern Review admitted that it will likely cost 1% of GDP –even though it doesn’t seem much, it is double the amount currently spent on development aid worldwide.
The issue here is how countries can expect to make cuts in emissions when their economic competitors refuse. This in turn leads to the Tragedy of the Commons which occurs when a group’s individual incentive lead them to take actions which, overall, lead to negative consequences for all group members. A country that refuses to act, whilst the other cooperates, will experience a free-rider benefit - enjoying the advantage of limited climate change without the cost. On the flip side, any country that imposes limits, when its competitors do not, incurs not just the cost of limiting its own emissions, but also a further cost in terms of reduced competitiveness
The dynamics of the prisoner’s dilemma do change if participants know that they will be playing the game more than once. In 1984 an American political scientist at the University of Michigan, Robert Axelrod, argued that if you play the game repeatedly you are likely to see emerging is cooperative rather than defective actions.
He identified four elements to a successful strategy which is this case can be applied to climate negotiations:
1. Be Nice – sign up to unilateral cuts in emissions, as deep as your economy and financing capacity allows.
2. Be Retaliatory – single out countries that have not commenced action and, in collaboration, find ways of pressurising them until they do so.
3. Be Forgiving - when non-compliant countries come onboard give them generous applause; signal that good behaviour will be rewarded with even deeper cuts in your own emissions.
4. Be Clear - let everyone know in advance exactly how you are going to behave – that you will work with them if they take action on emissions, and that you will retaliate if they do not.
Repeated Prisoner’s Dilemma provides valuable insight into how countries should act away from the negotiating table and over the longer term. Ultimately, for the planet’s sake, one hopes that everyone will play the game
Source: Mark Johnston, EconoMax, December 2007
Sunday 20 May 2012
Wednesday 16 May 2012
Thursday 10 May 2012
Unit 4: A model essay answer
Question: Using the data and your own knowledge, to what extent might a fall in the value of the exchange rate help to bring about a recovery for the UK economy? (30 marks)
A depreciation in the exchange rate reduce the external purchasing power of sterling against other currencies including the US dollar and the Euro. Recovery is a broadly-based expansion of economic activity shown through a pick up in aggregate demand, real GDP and (hopefully) a rise in employment as the economy recovers from a recession.
Figure 2 indicates that sterling has depreciated against the US dollar in recent years. The steepest fall came in 2007-09 when the pound fell from $2.00 to $1.57, a decline of over 20 per cent. This is a significant change in the exchange rate although sterling has remained fairly stable since then and we are not given data on movements against other currencies including the Euro with whom more than 50% of UK trade is conducted.
That said a 20% depreciation represents a sizeable and important easing of monetary policy which in normal times might have an equivalent effect to a 3-4% reduction in policy interest rates. A more competitive exchange rate can be expected to contribute to recovery in several ways.
First it makes UK exports more price competitive in international markets, and assuming that demand is fairly price elastic, we would hope to see a strong increase in export volumes overseas, creating a fresh injection of demand into the circular flow. Evidence for this is shown in Figure 2 where real export volumes grew by 7.4% in 2010 after a 9.5% fall a year earlier. This could be seen as a lagged response to a sterling depreciation a year or so earlier.
Higher export sales provide a direct boost to demand and the effect on output and jobs will be amplified if there is a multiplier effect. For example a rise in overseas sales of cars will cause increased derived demand for component parts, raw materials and higher profits for many industries involved in other supply-chain activities. A rise in exports might also prompt an increase in capital investment although this effect might be limited because of the high level of spare capacity at the end of recession.
If sterling is weaker, the UK price of imports will increase bringing about a slower growth of demand for foreign-produced goods and services. Import growth was negative in the recession year of 2009 (-12.2%) but rebounded strongly a year later despite the fall in sterling. Perhaps the price elasticity of demand for imports is low, at least in the short term?
Overall, a depreciation of sterling should help to bring about a recovery of output and also a re-balancing of the economy away from consumption and imports towards exports and investment. That at least is the hope of the Bank of England and the Treasury. We see from Figure 1 that, despite a higher deficit in 2010 of 2.5% of GDP, there has been a gradual improvement in the UK’s current account on the balance of payments. The trade deficit in goods has continued to grow (it was £99bn in 2011) but the trade surplus in services is higher (over £70bn last year) and the weakness of sterling has increased the sterling value of the interest, profits and dividends from UK investments overseas.
My view is that a depreciation of the exchange rate has been an important part of the UK economy beginning a long, slow process of recovery and adjustment after the downturn. But several other factors need to be borne in mind.
First, a 20% depreciation increases the prices of imports - from finished manufacture products to the prices of essential foodstuffs and energy supplies. This is one reason why CPI inflation has been persistently above target in recent years. Figure 2 shows an acceleration in inflation from 2.2% in 2009 to more than double this (4.5%) in 2011. Higher inflation threatens to erode the competitive advantage given by the fall in sterling’s external value and it has been a key factor causing real incomes and living standards to fall in the last two years.
Second the fall in sterling has not been sufficient on it’s own to bring about a strong recovery. Figure 1 shows that the LFS unemployment rate continues to rise climbing from 5.7% of the labour force in 2008 to over 8% in 2011. Real GDP growth for the UK has been weak, the economy grew by less than 1% last year and output lags well below the level seen at the start of the recession.
A key problem has been that many of the UK’s major export markets have had deep economic troubles of their own, notably the debt crisis engulfing the Euro Zone. Too few of our exports go to the fast-growing emerging nations including the BRIC and MIST countries where per capita incomes are rising and trade and export opportunities are flourishing.
Despite the weakness of sterling, many British businesses have found it tough to secure the trade insurance and export credit finance needed to complete new export orders, our financial fragility may well be holding back am export-led recovery. Doubts remain too about the non-price quality of many UK products especially in industries where intense global competition requires strong innovation and research investment. Manufacturing industry in particular exports over sixty per cent of output to the rest of the world, but decades of de-industrialisation have led to a situation where this industry contributes less than 12% of GDP and one could argue is no longer of a sufficient scale to reap the rewards of the advantages of a competitive exchange rate.
Sterling’s depreciation came at the right time for the UK economy and without it there is a real danger that we would have suffered a depression and unemployment well in excess of 10%. But the lagged and, so far modest expansionary effects of a cheaper currency are a reminder that no single macroeconomic policy instrument on its own is likely to have a sufficiently big impact to bring about a strong recovery. External demand provides a welcome boost when we are at risk of semi-permanent recession but it needs the injection of higher domestic demand for growth rates of 2% or more to be sustained. Growth is being held back by deep cuts in real living standards and mistimed and poorly judged fiscal austerity from central Government.
A depreciation in the exchange rate reduce the external purchasing power of sterling against other currencies including the US dollar and the Euro. Recovery is a broadly-based expansion of economic activity shown through a pick up in aggregate demand, real GDP and (hopefully) a rise in employment as the economy recovers from a recession.
Figure 2 indicates that sterling has depreciated against the US dollar in recent years. The steepest fall came in 2007-09 when the pound fell from $2.00 to $1.57, a decline of over 20 per cent. This is a significant change in the exchange rate although sterling has remained fairly stable since then and we are not given data on movements against other currencies including the Euro with whom more than 50% of UK trade is conducted.
That said a 20% depreciation represents a sizeable and important easing of monetary policy which in normal times might have an equivalent effect to a 3-4% reduction in policy interest rates. A more competitive exchange rate can be expected to contribute to recovery in several ways.
First it makes UK exports more price competitive in international markets, and assuming that demand is fairly price elastic, we would hope to see a strong increase in export volumes overseas, creating a fresh injection of demand into the circular flow. Evidence for this is shown in Figure 2 where real export volumes grew by 7.4% in 2010 after a 9.5% fall a year earlier. This could be seen as a lagged response to a sterling depreciation a year or so earlier.
Higher export sales provide a direct boost to demand and the effect on output and jobs will be amplified if there is a multiplier effect. For example a rise in overseas sales of cars will cause increased derived demand for component parts, raw materials and higher profits for many industries involved in other supply-chain activities. A rise in exports might also prompt an increase in capital investment although this effect might be limited because of the high level of spare capacity at the end of recession.
If sterling is weaker, the UK price of imports will increase bringing about a slower growth of demand for foreign-produced goods and services. Import growth was negative in the recession year of 2009 (-12.2%) but rebounded strongly a year later despite the fall in sterling. Perhaps the price elasticity of demand for imports is low, at least in the short term?
Overall, a depreciation of sterling should help to bring about a recovery of output and also a re-balancing of the economy away from consumption and imports towards exports and investment. That at least is the hope of the Bank of England and the Treasury. We see from Figure 1 that, despite a higher deficit in 2010 of 2.5% of GDP, there has been a gradual improvement in the UK’s current account on the balance of payments. The trade deficit in goods has continued to grow (it was £99bn in 2011) but the trade surplus in services is higher (over £70bn last year) and the weakness of sterling has increased the sterling value of the interest, profits and dividends from UK investments overseas.
My view is that a depreciation of the exchange rate has been an important part of the UK economy beginning a long, slow process of recovery and adjustment after the downturn. But several other factors need to be borne in mind.
First, a 20% depreciation increases the prices of imports - from finished manufacture products to the prices of essential foodstuffs and energy supplies. This is one reason why CPI inflation has been persistently above target in recent years. Figure 2 shows an acceleration in inflation from 2.2% in 2009 to more than double this (4.5%) in 2011. Higher inflation threatens to erode the competitive advantage given by the fall in sterling’s external value and it has been a key factor causing real incomes and living standards to fall in the last two years.
Second the fall in sterling has not been sufficient on it’s own to bring about a strong recovery. Figure 1 shows that the LFS unemployment rate continues to rise climbing from 5.7% of the labour force in 2008 to over 8% in 2011. Real GDP growth for the UK has been weak, the economy grew by less than 1% last year and output lags well below the level seen at the start of the recession.
A key problem has been that many of the UK’s major export markets have had deep economic troubles of their own, notably the debt crisis engulfing the Euro Zone. Too few of our exports go to the fast-growing emerging nations including the BRIC and MIST countries where per capita incomes are rising and trade and export opportunities are flourishing.
Despite the weakness of sterling, many British businesses have found it tough to secure the trade insurance and export credit finance needed to complete new export orders, our financial fragility may well be holding back am export-led recovery. Doubts remain too about the non-price quality of many UK products especially in industries where intense global competition requires strong innovation and research investment. Manufacturing industry in particular exports over sixty per cent of output to the rest of the world, but decades of de-industrialisation have led to a situation where this industry contributes less than 12% of GDP and one could argue is no longer of a sufficient scale to reap the rewards of the advantages of a competitive exchange rate.
Sterling’s depreciation came at the right time for the UK economy and without it there is a real danger that we would have suffered a depression and unemployment well in excess of 10%. But the lagged and, so far modest expansionary effects of a cheaper currency are a reminder that no single macroeconomic policy instrument on its own is likely to have a sufficiently big impact to bring about a strong recovery. External demand provides a welcome boost when we are at risk of semi-permanent recession but it needs the injection of higher domestic demand for growth rates of 2% or more to be sustained. Growth is being held back by deep cuts in real living standards and mistimed and poorly judged fiscal austerity from central Government.
'A' Level Economists: Evaluation techniques
Some brief advice on getting higher evaluation marks
Evaluation questions carry the highest marks and ask for more from the student. For the AQA evaluation marks are reserved for the final essay-style question. But for EdExcel, evaluation marks are available in more questions – summarised below:
For students taking EdExcel Unit 1: From January 2011 there is a standard formula for evaluation:
• 6 from 14 marks
• 4 from 10 or 12 marks
• 2 from 8 marks
• 2 from 6 marks
• Evaluation may be spread across three or four of the five sub-questions in the data response.
Here are some thoughts from the examiners
(i) Before you can evaluate you must analyse!
(ii) Evaluate each argument as it is introduced into the answer
(iii) Examiners like students who develop clear chains of reasoning in their answers
(iv) Try to make at least 3 “explicit” references to the data given in the question
(v) “Answers do not always have a clear, logical structure”.
Hints for better marks:
a. Your answer should be around 2 sides in length, including diagrams
b. Identify the area of economics which is being tested in the essay-style question
c. Outline the relevant theory, using a diagram if possible (they really do help!)
d. Evaluate arguments/policies as you go
e. Develop one key point/argument per paragraph (no more) and leave a clear line between each paragraph
f. Remember to come to a ‘final judgement’ including referring back to the data
g. A conclusion is essential and should not just repeat earlier points.
h. Leave yourself 5 minutes for a final judgement of 4-5 lines. This is time well spent. Try to incorporate a new idea, e.g. how a policy may impact on different parties; how the policy may have different short v long run effects
Recent exam reports offer good advice on how to finish an evaluative essay strongly:
• Answers should include alternative points of view and these should be clearly identified
• Some attempt should be made to consider the strengths and weaknesses of the different viewpoints. [Rank them if possible]
• Where possible, use data to provide support for arguments or to refute a point of view
• Final judgements might be qualified by statements that include phrases such as ‘it depends on’.
• Useful evaluative words: “However, nevertheless, it is likely that, on the other hand….”
• Maintain a high quality of presentation, especially in high mark questions and with your diagrams
Evaluation questions carry the highest marks and ask for more from the student. For the AQA evaluation marks are reserved for the final essay-style question. But for EdExcel, evaluation marks are available in more questions – summarised below:
For students taking EdExcel Unit 1: From January 2011 there is a standard formula for evaluation:
• 6 from 14 marks
• 4 from 10 or 12 marks
• 2 from 8 marks
• 2 from 6 marks
• Evaluation may be spread across three or four of the five sub-questions in the data response.
Here are some thoughts from the examiners
(i) Before you can evaluate you must analyse!
(ii) Evaluate each argument as it is introduced into the answer
(iii) Examiners like students who develop clear chains of reasoning in their answers
(iv) Try to make at least 3 “explicit” references to the data given in the question
(v) “Answers do not always have a clear, logical structure”.
Hints for better marks:
a. Your answer should be around 2 sides in length, including diagrams
b. Identify the area of economics which is being tested in the essay-style question
c. Outline the relevant theory, using a diagram if possible (they really do help!)
d. Evaluate arguments/policies as you go
e. Develop one key point/argument per paragraph (no more) and leave a clear line between each paragraph
f. Remember to come to a ‘final judgement’ including referring back to the data
g. A conclusion is essential and should not just repeat earlier points.
h. Leave yourself 5 minutes for a final judgement of 4-5 lines. This is time well spent. Try to incorporate a new idea, e.g. how a policy may impact on different parties; how the policy may have different short v long run effects
Recent exam reports offer good advice on how to finish an evaluative essay strongly:
• Answers should include alternative points of view and these should be clearly identified
• Some attempt should be made to consider the strengths and weaknesses of the different viewpoints. [Rank them if possible]
• Where possible, use data to provide support for arguments or to refute a point of view
• Final judgements might be qualified by statements that include phrases such as ‘it depends on’.
• Useful evaluative words: “However, nevertheless, it is likely that, on the other hand….”
• Maintain a high quality of presentation, especially in high mark questions and with your diagrams
Wednesday 9 May 2012
Unit 4: Economic Development Revision Pack 2012
A huge thanks to David Carpenter for this excellent revision aid.
Within this revision pack, written specifically for unit 4 Edexcel Economics you will find a number of useful pieces of information:
1. Revision questions- if you can complete all these activities then you will fully understand the content of development economics.
2. Case studies- in my opinion the most important section. Students regularly fail to include application in their essay answers, and this will prevent them from achieving top grades. Over these page I’ve suggested examples to go with every limit to growth & development and every strategy to promote growth & development, and include ones relevant to both explanation and evaluation points. And this section has been fully updated with lots of new countries for 2012.
3. Levels Marking Criteria- it’s vital that students put enough points into their essays, otherwise they’re making it impossible for an examiner to give them top grades
4. Example essay questions- I’m strongly encouraging all my students to undertake several of these essay questions in preparation for their unit 4 exam.
Within this revision pack, written specifically for unit 4 Edexcel Economics you will find a number of useful pieces of information:
1. Revision questions- if you can complete all these activities then you will fully understand the content of development economics.
2. Case studies- in my opinion the most important section. Students regularly fail to include application in their essay answers, and this will prevent them from achieving top grades. Over these page I’ve suggested examples to go with every limit to growth & development and every strategy to promote growth & development, and include ones relevant to both explanation and evaluation points. And this section has been fully updated with lots of new countries for 2012.
3. Levels Marking Criteria- it’s vital that students put enough points into their essays, otherwise they’re making it impossible for an examiner to give them top grades
4. Example essay questions- I’m strongly encouraging all my students to undertake several of these essay questions in preparation for their unit 4 exam.
Development Revision Pack 2012
View more documents from mattbentley34.
Sunday 6 May 2012
Unit 4: Poverty, the lorenz curve and the Gini Coefficient
A little bit of maths for you this morning!
Don't worry about the maths, just remember what it measures!
Don't worry about the maths, just remember what it measures!
Wednesday 2 May 2012
Unit 4: Spanish head to Argentina for work!
Catastrophically high unemployment in countries such as Spain are causing people to leave the Med in search of work elsewhere and thousands are trying their luck in South America. This short video from Al Jazeerah news looks at the growing number of people heading to Argentina looking for a job or perhaps the chance to start a new business.
Watching it is a chance to revise some of the factors that affect the geographical mobility of labour? This Economist report looks at some of the causes of geographical immobility of labour.
Watching it is a chance to revise some of the factors that affect the geographical mobility of labour? This Economist report looks at some of the causes of geographical immobility of labour.
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