Section B

Read the extracts and then answer all questions.

Extract 1

Bank of England’s Monetary Stance The Bank of England must maintain a very expansionary policy as the economy is still in a precarious situation. There has not really been much of a recovery from what was one of the deepest recessions in the history of this country. I think where monetary policy needs to be right now is to maintain a very expansionary stance and try to boost demand as quickly as possible. It is likely that wage settlements will remain subdued and that is one of the reasons why it seems to me pretty likely that inflation will continue on the downward trajectory. Falling inflation should also help hard-pressed households, finally ending the price squeeze on their disposable income. That will really change the dynamics of consumer spending. ‘However, consumer spending was unlikely to be fuelled by easy credit. I think it will be foolish to expect the availability and cost of credit to households and companies to go back to relatively easy conditions we were in the years leading up to the crisis.’

Source: D. Miles, 23 February 2012.

Extract 2

Failure of Monetary Therapy

In late 2008, UK economy was in intensive care. Jobs have been lost in a massive scale, and business has evaporated. The Bank of England has already cut interest rates by 3.75% from their peak in summer of 2007 to just 2%. Yet, the news from the patient has continued to get worse. Central banks’ great fear is that as the economy deteriorates, interest rates are cut close to zero, and inflation gets very low or negative, the economy slides into an abyss where no one feels like spending, or making new investments, everyone hangs onto their cash, and the economy is driven ever further into decline. That is where Japan got stuck during its ‘lost decade’ of the 1990s – in which prices were plunging, anxious consumers were wary about spending money, and recession and deflation went hand in hand. Fear and uncertainty themselves can have a powerful impact on economies and blunt the effect of monetary action. In the UK, firms became incredibly cautious when uncertainty went up: they did not react to either good or bad news. Within the Bank of England, there was a rising fear that with interest rates at 2%, the Monetary Policy Committee was pulling down hard on the main lever it has at its disposal, but little was happening at the other end. The ineffectiveness of monetary policy was further compounded by the parlous state of the banking system, which was preventing the benefits of interest rate cuts from being passed on. For many businesses, and hopeful first-time buyers, low rates of interest were almost meaningless, as they struggle to get a loan at all. Banks that have seen their balance sheets ravaged understandably have little enthusiasm for making risky new loans. As cash-flow problems mount among businesses, there was a risk of widespread insolvencies and mass layoffs. That could create a nasty feedback loop, as more borrowers default on loans, inflicting yet more damage on banks’ balance sheets. The central bank governor, Mervyn King, is keenly hoping the weaker pound will help the economy to recover strongly once the global downturn is over, as world trade picks up; but if scores of firms have gone bust through lack of funds, there will be fewer exporters to take advantage of rising demand, and recovery could be slow and sickly. Even if every dose of monetary policy medicine is passed on to ordinary firms and families, once rates get close to nought, it may be time for a fresh approach- which is why King and his colleagues are beginning to weigh up quantitative easing. If orthodox monetary policy is not working terribly well at the moment-quantitative easing is going to become a consistent theme. That would be a radical, risky measure, threatening inflation further down the line; but these are not normal times. As the US economy lurches deeper into recession, the UK’s prospects look increasingly grim. King may soon decide it is time to resort to the monetary equivalent of shock treatment.

Source: Adapted in part from The Guardian, 7 December 2008.

A) i) Drawing upon both extracts, identify and explain three factors which determine the level of household consumption in the UK economy. [6 marks]

ii) Explain how discretionary fiscal policy works? [6 marks]

B) Extract 2 asserts that ‘jobs have been lost in a massive scale, and business has evaporated.’ In relation to the above statement, how far do you think quantitative easing is a correct policy action although it would be ‘radical, risky measure, threatening inflation further down the line’? Discuss in terms of inflation and unemployment costs perspectives. [12 marks]

C) Explain how expansionary monetary policy is supposed ‘to boost demand’(Extract 1). [9 marks]

D) ‘The Monetary Policy Committee was pulling down hard on the main lever it has at its disposal, but little was happening at the other end’ (Extract 2). Using appropriate economic reasoning, evaluate in the context of the extract why this might be the case. [7 marks]

[Total: 40 marks]

~ END OF PAPER ~

Public attitudes about the economy have turned bleak in much of the world as the coronavirus outbreak continues to affect daily life, according to a Pew Research Center survey conducted this summer in 14 nations in Europe, North America, and the Asia-Pacific region. Assessments of national economies have seen swift downturns in many countries, and few see improvements anytime soon amid what the International Monetary Fund calls a “crisis like no other.”
Overall, a median of only 31% of adults across the surveyed nations assesses their country’s current economic situation as good, while 68% say conditions are bad.
In 10 of the countries surveyed – including all of those surveyed in North America and the Asia-Pacific region – majorities consider the current economic situation worse.
In Europe, attitudes are mixed. Generally, Northern Europeans surveyed have more positive assessments, with a majority of Danes, Swedes, and Dutch rating their country’s economic condition positively. Germans are split (51% good, 47% bad). In the rest of the European countries surveyed – Belgium, the UK, France, Spain, and Italy – large majorities rate economic conditions negatively. Twelve of the 14 countries in the new survey were also surveyed in 2019, and in all 12, the share of adults who think their country’s current economic situation is bad has risen by double digits.
The sharpest uptick in negative assessments has come in Canada, where second-quarter losses in the gross domestic product were estimated at 12%. The share of Canadians who say the country’s current economic situation is bad has roughly doubled, from 27% in 2019 to 61% this year. Negative assessments have also grown by 30 percentage points in the UK, U.S., and Australia.
Sweden, which has not imposed strict shutdown measures during the COVID-19 outbreak, saw the smallest increase in negative assessments of the economy. But even there, GDP is expected to contract by roughly 5% in 2020, and Swedes are 11 percentage points more likely to think economic conditions in their country are poor than in 2019.
In addition to the broadly negative assessments of current economic conditions, few in the countries surveyed are hopeful things will get better in the next year. A median of 35% thinks the economic situation in their country will improve in the next 12 months, while nearly half (46%) expect conditions to worsen and 19% think nothing will change.
Majorities or pluralities in eight of the countries surveyed expect their national economies to decline further. This includes people in countries such as the UK, France, Italy, Japan, and South Korea. By contrast, people in the U.S., Canada, and Germany are more likely to say the economy will improve over the next 12 months than to say it will worsen.
In many of the countries surveyed, those who say their country’s current economy is in bad shape are more likely than those who say the economy is doing well to believe that the economy will worsen in the next 12 months. In South Korea, for example, 68% of those who say the current economy is bad also say they expect it to get worse in the coming year, compared with just 22% among those who say the current economy is good.
In almost every country included in the survey, public perceptions of whether the national economy is bad are related to assessments of how the country has handled the coronavirus outbreak. Those who view their country’s coronavirus response negatively are more likely to describe their country’s current economic situation as bad.
This is particularly apparent in the U.S. Among Americans who say their country has responded poorly to COVID-19, 87% say the economy is bad, compared with half among those who say the response went well – a 37 percentage point difference. In Italy and Japan, this difference is less stark.
In roughly half of the countries surveyed, a similar pattern exists when it comes to assessments of the future economic situation. For example, Belgians who negatively evaluate their country’s handling of COVID-19 are 23 points more likely than compatriots who approve of the government response to say their economy will worsen over the next 12 months.
Only in Canada and Australia are people with lower incomes more likely than those with higher incomes to rate the current economic situation as bad.
In the U.S., Denmark, Spain, Australia, and Japan, men are more likely than women to rate the state of the economy positively, and in Germany, Sweden, Japan, and South Korea, men are also more optimistic about the economy improving.
In the U.S., 82% of those ages 18 to 29 say the current economic situation is bad, compared with 58% of those ages 50 and older. Younger Americans are also less likely than their older counterparts to expect improvements in the economic situation. In the Netherlands and South Korea, the opposite is true: Older people are more likely than younger people to say the current economic situation is bad. Younger South Koreans are generally more optimistic about a rebound than their older counterparts.

Please Re-write the information above on your owns words:

Section B

Read the extracts and then answer all questions.

Extract 1

Bank of England’s Monetary Stance The Bank of England must maintain a very expansionary policy as the economy is still in a precarious situation. There has not really been much of a recovery from what was one of the deepest recessions in the history of this country. I think where monetary policy needs to be right now is to maintain a very expansionary stance and try to boost demand as quickly as possible. It is likely that wage settlements will remain subdued and that is one of the reasons why it seems to me pretty likely that inflation will continue on the downward trajectory. Falling inflation should also help hard-pressed households, finally ending the price squeeze on their disposable income. That will really change the dynamics of consumer spending. ‘However, consumer spending was unlikely to be fuelled by easy credit. I think it will be foolish to expect the availability and cost of credit to households and companies to go back to relatively easy conditions we were in the years leading up to the crisis.’

Source: D. Miles, 23 February 2012.

Extract 2

Failure of Monetary Therapy In late 2008, UK economy was in intensive care. Jobs have been lost in a massive scale, and business has evaporated. The Bank of England has already cut interest rates by 3.75% from their peak in summer of 2007 to just 2%. Yet, the news from the patient has continued to get worse. Central banks’ great fear is that as the economy deteriorates, interest rates are cut close to zero, and inflation gets very low or negative, the economy slides into an abyss where no one feels like spending, or making new investments, everyone hangs onto their cash, and the economy is driven ever further into decline. That is where Japan got stuck during its ‘lost decade’ of the 1990s – in which prices were plunging, anxious consumers were wary about spending money, and recession and deflation went hand in hand. Fear and uncertainty themselves can have a powerful impact on economies and blunt the effect of monetary action. In the UK, firms became incredibly cautious when uncertainty went up: they did not react to either good or bad news. Within the Bank of England, there was a rising fear that with interest rates at 2%, the Monetary Policy Committee was pulling down hard on the main lever it has at its disposal, but little was happening at the other end. The ineffectiveness of monetary policy was further compounded by the parlous state of the banking system, which was preventing the benefits of interest rate cuts from being passed on. For many businesses, and hopeful first-time buyers, low rates of interest were almost meaningless, as they struggle to get a loan at all. Banks that have seen their balance sheets ravaged understandably have little enthusiasm for making risky new loans. As cash-flow problems mount among businesses, there was a risk of widespread insolvencies and mass layoffs. That could create a nasty feedback loop, as more borrowers default on loans, inflicting yet more damage on banks’ balance sheets. The central bank governor, Mervyn King, is keenly hoping the weaker pound will help the economy to recover strongly once the global downturn is over, as world trade picks up; but if scores of firms have gone bust through lack of funds, there will be fewer exporters to take advantage of rising demand, and recovery could be slow and sickly. Even if every dose of monetary policy medicine is passed on to ordinary firms and families, once rates get close to nought, it may be time for a fresh approach- which is why King and his colleagues are beginning to weigh up quantitative easing. If orthodox monetary policy is not working terribly well at the moment-quantitative easing is going to become a consistent theme. That would be a radical, risky measure, threatening inflation further down the line; but these are not normal times. As the US economy lurches deeper into recession, the UK’s prospects look increasingly grim. King may soon decide it is time to resort to the monetary equivalent of shock treatment.

Source: Adapted in part from The Guardian, 7 December 2008.

A) i) Drawing upon both extracts, identify and explain three factors which determine the level of household consumption in the UK economy. [6 marks]

ii) Explain how discretionary fiscal policy works? [6 marks] B) Extract 2 asserts that ‘jobs have been lost in a massive scale, and business has evaporated.’ In relation to the above statement, how far do you think quantitative easing is a correct policy action although it would be ‘radical, risky measure, threatening inflation further down the line’? Discuss in terms of inflation and unemployment costs perspectives. [12 marks]

C) Explain how expansionary monetary policy is supposed ‘to boost demand’(Extract 1). [9 marks]

D) ‘The Monetary Policy Committee was pulling down hard on the main lever it has at its disposal, but little was happening at the other end’ (Extract 2). Using appropriate economic reasoning, evaluate in the context of the extract why this might be the case. [7 marks]

~END OF PAPER~

Item 7

In the case below, the original source material is given along with a sample of student work. Determine the type of plagiarism by clicking the appropriate radio button.

Which of the following is true for the Student Version above?

Word-for-Word plagiarism

Paraphrasing plagiarism

This is not plagiarism

Hints

Item 8

In the case below, the original source material is given along with a sample of student work. Determine the type of plagiarism by clicking the appropriate radio button.

Which of the following is true for the Student Version above?

Word-for-Word plagiarism

Paraphrasing plagiarism

This is not plagiarism

Hints

Item 9

In the case below, the original source material is given along with a sample of student work. Determine the type of plagiarism by clicking the appropriate radio button.

Which of the following is true for the Student Version above?

Word-for-Word plagiarism

Paraphrasing plagiarism

This is not plagiarism

Hints

Item 10

In the case below, the original source material is given along with a sample of student work. Determine the type of plagiarism by clicking the appropriate radio button.

Which of the following is true for the Student Version above?

Word-for-Word plagiarism

Paraphrasing plagiarism

This is not plagiarism

1.  For answering the question below, you can use your own home, your parents’ or a friend’s home, or just imagine your dream first home and location.

Your homeowners policy is about to be renewed.  It is written to cover your dwelling for its original construction cost.  The policy is a Homeowners form HO-3 and is standard in all respects.  The coverages are all standard percentages, and there are no endorsements or modifications to the policy.  What changes to this basic contract should you consider?

2.  You might be able to answer this one using your own dwelling, apartment, dorm room, etc.  If not, refer to #1 above.  Go to the www.rateyourrisk.org (Links to an external site.)Links to an external site. web site and take the "Risk of Burglary Test."   What changes can you make to decrease the likelihood of this type of crime?

3.  As the CEO of a property-casualty insurance company, how would another downturn in the economy, such as what happened from 2007-2010, especially in the housing market, affect your homeowners insurance business? What about insurers in areas at risk for natural disasters such as the Houston area or Florida?

4. How might changes in technology such as Smart Homes and the Internet of Things, Solar Panels, etc. affect the structure of homeowners insurance with respect to coverages and risk exposures?

1. Which of the following statements regarding personality development is TRUE?

A. Personality is determined by heredity and does not change over the course of one's life.

B. The greatest changes in personality development occur in early childhood.

C. Personality development is relatively stable, but great changes occur later in one's life.

D. Personality development is rarely stable and dramatic changes can be seen in all stages of a person's life.

2. Which of the following is the primary vehicle for socializing an individual into a particular culture?

A. immediate family

B. group membership

C. life experiences

D. peers

3. A society in which gender roles overlap is said to be

A. masculine.

B. feminine.

C. gender neutral.

D. gender biased.

4. Job _______ is the extent to which individuals find fulfillment in their work.

A. satisfaction

B. appreciation

C. awareness

D. motivation

5. What does research suggest about the correlation between job satisfaction and job performance?

A. Job satisfaction and job performance are influenced by one's personality.

B. There is a direct link between job satisfaction and job performance.

C. Job performance and job satisfaction are not influenced by one's attitudes or locus of control.

D. There is no link between a satisfied, high-performing workforce and overall organizational effectiveness.

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $600 per set and have a variable cost of $300 per set. The company has spent $170,000 for a marketing study that determined the company will sell 63,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 14,000 sets of its high-priced clubs. The high-priced clubs sell at $900 and have variable costs of $600. The company will also increase sales of its cheap clubs by 9,000 sets. The cheap clubs sell for $400 and have variable costs of $200 per set. The fixed costs each year will be $8,484,000. The company has also spent $1,103,000 on research and development for the new clubs. The plant and equipment required will cost $20,200,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,059,000 that will be returned at the end of the project. The tax rate is 21 percent, and the cost of capital is 8 percent. McGilla Golf would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold.

a. What is the sensitivity of the NPV to changes in the price of the new club?

b. What is the sensitivity of the NPV to changes in the quantity sold?

Calculate the elasticity for the following questions (USING THE MIDPOINT (AVERAGE) FORMULA) and indicate if the goods are:

1. Inferior,
2. Normal,
3. Complements, or
4. Substitutes

(Please Include The Negative signs in your answers where appropriate)

A. The price of gasoline increases from 12 per barrel to 28 per barrel and as a result, the demand per month for new cars changes from 600 to 200.

Part 1: The elasticity is


Part 2: These goods are (answer using numbers, 1-4)

B. As a result of a change in income from 1,275 to 1,875 per month, the consumption of good X changes from 380 to 200 units.


Part 3: The elasticity is



Part 4: Good X is a(an) (answer using numbers, 1-4)


C. As a result of a decrease in the price of good Y from 39 to 19 the demand for good X changes from 150 to 350 units.


Part 5: The elasticity is



Part 6: These goods are(answer using numbers, 1-4)


D. As a result of an economic boom in Calgary, the average income increases from 2,800 to 4,200 per month and as a result the demand for new houses increases from 160 to 260 units.


Part 7: The elasticity is



Part 8: New houses are a(an) (answer using numbers, 1-4)

1. A sample of ideal gas at room temperature occupies a volume of 38.0 L at a pressure of 512 torr . If the pressure changes to 2560 torr , with no change in the temperature or moles of gas, what is the new volume, V2?

Express your answer with the appropriate units.

V2 =

2. If the volume of the original sample in Part A (P1 = 512 torr , V1 = 38.0 L ) changes to 51.0 L , without a change in the temperature or moles of gas molecules, what is the new pressure, P2?

Express your answer with the appropriate units.

P2 =

3. A sample of gas in a balloon has an initial temperature of 8.0 ∘C and a volume of 1.38×10³ L . If the temperature changes to 73 ∘C , and there is no change of pressure or amount of gas, what is the new volume, V2, of the gas?

Express your answer with the appropriate units.

V2 =

4. What Celsius temperature, T2, is required to change the volume of the gas sample in Part A (T1 = 8.0 ∘C , V1= 1.38×10³ L ) to a volume of 2.76×10³ L ? Assume no change in pressure or the amount of gas in the balloon.

Express your answer with the appropriate units.

T2 =

5. If the initial volume of the balloon is 2.5 L , what will its volume be after it cools? (Assume constant pressure.)

Express your answer using two significant figures.

V2 =

Calculate the elasticity for the following questions (USING THE MIDPOINT (AVERAGE) FORMULA) and indicate if the goods are:

1. Inferior,
2. Normal,
3. Complements, or
4. Substitutes

(Please Include The Negative signs in your answers where appropriate)

A. The price of gasoline increases from 20 per barrel to 30 per barrel and as a result, the demand per month for new cars changes from 650 to 300.

Part 1: The elasticity is


Part 2: These goods are (answer using numbers, 1-4)

B. As a result of a change in income from 1,475 to 2,975 per month, the consumption of good X changes from 340 to 425 units.


Part 3: The elasticity is



Part 4: Good X is a(an) (answer using numbers, 1-4)


C. As a result of a decrease in the price of good Y from 31 to 20 the demand for good X changes from 300 to 350 units.


Part 5: The elasticity is



Part 6: These goods are(answer using numbers, 1-4)


D. As a result of an economic boom in Calgary, the average income increases from 2,500 to 5,500 per month and as a result the demand for new houses increases from 150 to 360 units.


Part 7: The elasticity is



Part 8: New houses are a(an) (answer using numbers, 1-4)