Posts tagged aggregate demand
Applied Macroeconomics – Evaluating Demand Side Policies
Nov 2nd
Aims:
· To recap the Paper 1 Mark Scheme
· To revise learning on the macroeconomic equilibrium, Keynesian and neoclassical perspectives and demand side policies.
· To apply the above learning to examples, both theoretical and real-life.
· To develop critical analysis and evaluation skills.
Step 1 – Recap Exam Technique
· Remember the Paper 1 Mark Scheme
· Remember the tips on evaluation
Step 2 – Analyse a Theoretical Scenario.
Image: Some rights reserved by APMus
You should ideally work in a pair or three and, as a team, will analyse the likely macroeconomic impacts of one of the following scenarios.
1) Government announces a large increase in spending on health and education.
2) Chancellor announces tax exemption scheme on new investments for small to medium sized firms.
3) Average wage rises way above inflation for the third month running.
4) Exchange rate appreciation knocks export hopes for manufacturing.
5) Institute of Directors (IOD) latest survey shows clear signs of optimism for the future of the economy
6) Central Bank signals rise in interest rates of ½%
- You should include at least one diagram.
- You should evaluate the likely effects – how strong will the impact be?
- There may not be one single answer – you simply need to be able to justify your predicted outcomes. Evaluation often needs to look at the assumptions we start with – you should be clear about what you are assuming.
Prepare a presentation (using for example Google Docs Presentation on MS Powerpoint) and prepare between two and four slides to show and explain the effects.
Step 3 – Analyse a Real Life Scenario.
Image: Some rights reserved by RambergMediaImages
You ideally need to form different pairs / threes in which you will be able to offer feedback to each other.
Each pair focuses on a region of the world, and each person selects a separate and current headline and article related to a demand side policy that has been introduced by the government there.
· North America
· South America
· Europe
· Africa
· Asia (not Thailand)
· Thailand
You need to summarise:
· Why there was a need for the demand-side policy
· The likely impact and successes / shortcomings of the policy.
· Include reference to at least one diagram
Try to use all of the techniques needed for a top scoring evaluation based essay.
Create a Google doc (or some similar document) that you will share with your partner(s).
A suggested site to search on: http://news.google.co.uk/
Here is the evaluation spreadsheet to provide feedback with. Make a copy and share it with your partner to offer them feedback with.
Aggregate Demand Part 1
Nov 1st
Relevant Syllabus Points:
3.3. Macroeconomic Models: Aggregate demand—components
3.4 Demand-side and supply-side policies: Shifts in the aggregate demand curve/demand-side policies [fiscal policy, interest rates as a tool of monetary policy]
Questions:
- What is Aggregate Demand?
- What are the components of Aggregate Demand?
- What shape does the curve have and why? How are the axes labelled?
- What causes a movement along the AD curve?
- What factors affect Aggregate Demand, causing it the curve shift? Categorise your answers under the four main components. Give examples and show the effects in diagrams.
Overview of the Aggregate Demand Curve:
CuteChadz gives a 2 minute overview. Note that figures given are UK based and the 2nd bullet point on Consumption is a bit confusing and so can be ignored:
mjmfoodie on AD and AS. Watch the first 4 minutes (we can use the last 1 and a half minutes later when we cover Aggregate Supply)
Why does the Aggregate Demand Curve slope downwards?
econsteve12 gives quite a thorough and clear explanation here:
Reffonomics on Slope of Aggregate Demand
What factors affect aggregate demand?
CuteChadz gives a 10 minute overview, referring to such things as loose, tight, fiscal, and monetary policy.
Specifically, what influences Consumption, the main component of AD?
pajholden gives a 7 minute 15 seconds overview:
The Multiplier, Accelerator and Crowding Out
Aug 17th
These are Higher Level Extension Topics, and are listed in the following way on the 2005 IB syllabus:
• Multiplier
[including calculation of multiplier]
• Accelerator
• “Crowding out”
Here are some video resources and questions to help you understand these concepts.
Watch the following video and then answer the questions underneath.
MPC and the Multiplier by FitzEcon
1) Define the MPC?
2) What is the formula for the multiplier?
3) Define the MPS.
4) Record, in writing / notes, the example given by the speaker.
5) Extension – Check your text book’s entry and enhance your explanation of the multiplier, with particular attention to the concept of ’rounds’
Fiscal policy and the multiplier effect by pajholden
6) Why, in the example given, does the government want to boost Aggregate Demand?
7) What would be the trade-off of this economic goal?
8] Demonstrate the above on a sketch diagram.
9) What two fiscal policy options does the government have?
10) What does the theory of the multiplier effect state? (add to previous explanation)
11) Briefly summarise the example given of how an initial increase in spending on healthcare by the government leads to further increases in AD.
12) What are the difficulties mentionned which are associated with the multiplier effect?
13) Extension – think about it – why might cutting tax be different in terms of the impact on the multiplier compared to increasing government spending by the same amount of money?
MEC and Accelerator investment theories by pajholden
NOTE You only need to focus on the Accelerator Theory (4 mins 16 secs onwards) for HL IB Economics (although it is harmless to view the MEC theory section)
14) What are the two types of investment mentionned – explain the difference.
15) What is the Accelerator Theory in basic terms.
16) Enhance your notes by checking your text book and following links:
http://tutor2u.net/economics/revision-notes/as-macro-multiplier-accelerator.html
Bottom of this page: http://econ.la.psu.edu/~dshapiro/l18nov04.htm
http://cafehayek.com/2010/02/crowding-out.html
Crowding Out
Research and summarise information to include the following features under the topic of ‘crowding out’. Two useful videos and a slideshow are given at the end.
- Definitions
- Explanation of what it is
- Examples
- Diagrams
- Outline the difference between complete, partial and no crowding out.
(Macro) Episode 27: Crowding Out & Lags by mjmfoodie
Note that from c. 2mins 50 secs moves on to time lags – it is good revision of this separate topic!
A helpful animated slideshow:
Crowding Out Effect by reffonomics.com – click here
And finally, this is pure genius! …
