Preparing for Interview at Oxford University

Also, I am in my AS year and I am applying to study PPE at Oxford next year, which I noticed you studied. Do you have any useful advice for preparation for the interview? Thanks.

  • You must have an interest in the subject, this will come through reading outside a strict academic syllabus.
  • You need to be able to talk about issues and express personal opinions. Don't leave it until a week before. This can only be gained over time. Try and find someone interested in topical subjects, or write some ideas down in a blog or something.
  • They won't test you on memorising statistics. I remember before my interview, a schoolmate spent all day "revising the financial times" - He was really disappointed when they asked him to:

"Imagine you have to explain the northern ireland peace process to an alien from outer space."
  • Don't be shy, but don't come across as arrogant or a know it all. At the end of the day they are judging whether you would be a good person to teach. A good student is not just bright and clever, but pleasant to teach.
  • I'll never forget my philosophy inteview. They asked some question about logic. I couldn't do it. Rather than move on to another question, they just stuck with same question for half an hour. - I still couldn't do it 30 mins later. I was convinved they wouldn't let me in. But, thankfully economics and politics were normal interviewers. (by the way i never understood logic and never went to logic classes. I dropped philosophy at end of first year.
  • If they ask you for a philosophical definition of courage you could always try setting fire to their newspaper. see link

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Inflation Forecasts - UK 2007

I'm thinking of investigating why uk inflation has risen in recent months. Obviously there are many reasons but could you highlight a few? or what you think is most important?

Firstly inflation has been a little volatile. For example, after CPI reached a peak of 3% earlier in the year, May inflation fell back to 2.5%. It is worth looking at underlying inflation which ignores volatile goods like energy prices and tobacco. Inflation May 2007

Why Inflation has been rising

1. The bank is concerned primarily in the growth of consumer spending. There is concern this is leading to growth above the underlying trend rate. Growth in consumer spending is coming from various factors such as:

  • Lower savings ratio and increased debt. See: why debt has increased in the UK
  • Rising House Prices. Booming Housing market creates positive wealth effect and more spending
  • High levels of consumer confidence

Evaluation - Why Inflation May Fall

  • Interest rate rises take time to have effect. For example, many fixed rate mortgages taken out when interest rates were very low (2003 and 2004) are soon coming to an end. Therefore, homeowners will soon be facing much higher mortgage payments and as a consequence reduce their spending.
  • Some feel rising house prices are actually causing young consumers to spend less. This is because people fear there is a bubble which will soon burst. Also first time buyers need to save to get on the property ladder
  • High levels of debt in the UK, mean that rising interest rates will have a big impact.
  • Global inflation is still relatively benign due to process of globalisation e.t.c.
  • House prices may set to fall soon - House price fall likely
See also: Inflation prospects in 2007

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Advantages and disadvantages of WTO

hello what are the advantanges and disadvantages of the WTO formally the GATT

The WTO is a body designed to promote free trade through organising trade negiotiations and act as an independent arbiter in settling trade disputes.

To some extent the WTO has been successful in promoting greater free trade.

Free trade has many advantages. such as:

  1. Lower prices
  2. greater competitiveness
  3. increased growth


However, the WTO has often been criticised for ignoring the plight of the developing world. It is argued the benefits of free trade accrue mostly to the developed world. In fact free trade has many disadvantages


In response to this the WTO may say that free trade has been an important engine of growth for developing countries in Asia. Although there may be some short term pain, it is worth it in the long run.

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Purchasing Power Parity

CAN YOU PLEASE EXPLAIN THE CONCEPT OF PURCHASING POWER PARITY

Purchasing Power parity

A purchasing power parity exchange rate takes into account the different purchasing power of currencies in their home countries for a given basket of goods.

  • For example, one dollar will buy more goods in China than in UK. This is because the cost of living is cheaper in China. Real exchange rates don't often take this into account.

PPP give a better comparison of living standards of two or more countries than using gross domestic products (GDP) using market exchange rates.

PPP is not straight forward because of the difficulties of finding comparable baskets of goods to compare purchasing power across countries.

Related Essay: TO what extent does GDP measure living standards

PPP has implications when comparing living standards for instance, GDP per capita in the People's Republic of China is about US$1,800, while on a PPP basis it is about US$7,204.

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Unit 6 Edexcel

Can you please provide me with a checklist for unit 6 edexcel so i can ensure that i have not missed out any topics because im confused on what i need to know as the exma paper illustrate more knowledge is required than what is on the spec


  • Factors Contributing to Globalisation
  • International Exchange
  • Trade Liberalisation and Protection
  • Sources of possible conflict between trading blocs and the role of the World Trade Organisation WTO
  • The Balance of Payments
  • Competitiveness
  • Exchange Rate Systems
  • European Monetary Union
  • Inward investment by MNC’s
  • External Shocks to the Global Economy
  • Public Expenditure and Taxation
  • Fiscal Policy
  • Unemployment (natural Rate)
  • Inflation (phillips curve trade off)
  • Monetary and Supply Side Policies
See also: Macro Economics

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Essays on Recessions

IS RECESSION A TOPIC LIKELY TO APPEAR IN UNIT 6 Edexcel?

It could come up in some form.

Essays on recessions could include:

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What determines International Competitiveness.

factors affecting the international competitiveness and government policies to enhance the UK relative position. and how successive uk gov measures have been

Factors effecting International Competitiveness

1. Inflation

UK inflation has been close to governments target since government made MPC independent in 1997. Therefore, this low inflation has helped increase UK competitivness.
HOwever, low inflation is due to other factors as well as Government
2. Increased Productivity

Government has used supply side policies to increase productivity. E.g. education and training.
However, there is a limit to what the government can do to increase productivity. Increased productivity can be due to other factors.

3. Value of Exchange Rate

A devaluation improves competitiveness. HOwever, in recent years the £ has been strong. This suggests it is other factors which have increased competitiveness rather than the exchange rate.

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Inward Investment on Developing Countries

Assess the impact of inward investment by Multi national companies on developing countries. (20)

Inward investment involves increasing the capital stock and increasing the productive capacity. Therefore AS can increase, enabling higher rates of growth in the long term. The investment is important in economic models such as Harod Domar, which stress the levels of savings and investment. It is investment like this which enables economic development.

However, inward investment may not benefit developing countries as much as expected. The MNC may employ foreign staff and send profit back to a developed country.

Creates Employment. Even if the work is low paid, it is probably better than working in agriculture. This can reduce help reduce poverty and promote development. However, there may be environmental costs of the investment. Inward investment is often focused on exploiting natural resources like mining and forestry. Therefore, in the long run there can be an adverse impact on the environment of the developing country. E.g. Cattle ranches in the amazon rainforest.


Inward investment can increase AD, and increase economic growth. This can lead to a multiplier effect of rising wages and improved standards of living for other.

Inward investment may help to improve the quality of technology and managerial experience. This can be passed onto other industries, so the whole economy benefits.

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Why Unemployment is high in Germany, France and Spain

Discuss Reasons why Unemployment is higher in Spain, France and Germany than the UK. (40)

The UK is not in Euro therefore, it retains an independent Monetary policy. It can change interest rates according to state of economy. When inflation is not a problem the MPC can reduce interest rates to stimulate demand. However, Germany and France have an interest rate set by the ECB. This interest rate is set for the whole EURO zone, but this may not be appropriate. If growth in Germany is low, interest rates may not be able to fall to stimulate AD. Therefore, Germany may experience higher demand deficient unemployment. However, in Europe countries are less sensitive to interest rate changes. Also, France and Germany have broken the growth and stability pact to borrow more and pursue an expansionary fiscal policy.

There is also higher structural unemployment in Europe. For example, it is said labour markets are more inflexible, e.g harder to hire and fire workers. therefore, this discourages firms from investing.

Another cause of unemployment could be powerful trades unions, causing wages to be pushed above the equilibrium and therefore causing real wage unemployment. However, the UK has quite a high Minimum wage, which potentially could cause real wage unemployment but doesn't seem to.

Unemployment benefits are more generous in Germany, increasing the incentive to stay on benefits and decreased incentive to work. The UK is very strict about giving benefits. Arguably, government statistics underestimate the real extent of unemployment. The ILO labour force survey is higher than the government's claimant count.

see also:

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Full Employment and conflict with other objectives

Discuss the extent to which the pursuit of Full Employment may conflict with other objectives. (60)

Full employment means unemployment is very low. There may be some frictional unemployment but generally those looking for work are able to find it. It also means the economy is operating close to, or at Full capacity.

To attain full employment the government could seek to increased Aggregate Demand (AD). This increases Real GDP and reduces cyclical unemployment; however as the economy gets close to full capacity it may cause inflationary pressures; causing inflation to be above target. Furthermore expansionary fiscal policies will cause higher consumer spending and therefore a rise in imports; this causes a current account deficit. This is particularly a problem in the UK, where consumers have a high Marginal propensity to consume imports.

However, it is possible to attain full employment through different approaches. To reduce unemployment, Monetarists argue the government should implement supply side policies. For example, making labour markets more flexible, increasing incentives to work, better education and training e.t.c. These policies can reduce the natural rate of unemployment without causing inflation. In fact some supply side policies which increase productivity may actually help to reduce inflation. Also, if the policies are successful in increasing productivity it will increase the competitiveness of UK exports and therefore improve the balance of payments current account.


Any type of economic growth may conflict with environmental objectives. Causing pollution and contributing to global warming. Arguably environmental objectives are not a high priority for macro economic objective. But, the economic cost of global warming is rising all the time.

However, it is possible to have economic growth and minimise the environmental impact.

related essays:

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How to Increase FDI in developing countries

Discuss 3 Policies to increase FDI in developing countries.

1. Improve quality of infrastructure.
This leads to lower costs for firms and therefore, encourages investment.
However, it will take a long time to have an effect. It will also cost alot of money.

2. Lower taxes for foreign firms.

This will lead to more firms wishing to invest; however, it will affect the government finances, they may have to increase other taxes. It depends on how beneficial FDI actually is, there maybe a high opportunity cost. There could be better things to subsidise. (foreign firms may repatriate the profit, so the developing country benefits little.

3. Subsidise firms to invest.

This provides a financial incentive to increase investment. However, it will be quite expensive. Also, it may attract the wrong kind of firm. The subsidy may encourage inefficiency.

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How to Deal with an Ageing Population

An ageing population means the government needs to spend more (on pensions and health care) it will also receive lower income tax.

If the government does nothing it will experience a rise in the structural budget deficit. This has many problems

1) Resource crowding out. government borrow from private sector so private sector have less to spend and invest. Furthermore the private sector is usually more efficient than government

2) Financial Crowding out.
To Borrow more money the government may need to increase interest rates, to make sure people buy enough debt. The problem is that this will put upward pressure on general interest rates and causes lower spending and growth in the economy.

3) Increase the national debt and annual interest payments. Italy already borrows over 100% of GDP. The effect is that a high % of GDP goes on servicing the debt, which will only increase over time.

4) It will require higher taxes or lower spending for future generations.

Policies to deal with an Ageing Population



Option ONE

Make people work longer.

From an economic point of view this is beneficial, this leads to more tax revenue and more spending. The main problem with this policy, is that it will be highly unpopular, especially from people who are nearing retirement age. People may say the government is going back on its word to provide pensions at a certain age. In the UK, the government has pledged to increase retirement age to 67, but this will not come in for a long time and therefore does not tackle the short term debt.

Option TWO

Increase income tax.

If the government increase income tax, they will increase revenue to pay for the higher pension bill. However, higher income tax may lead to lower work incentives. It may discourage people from living in a certain country. Because income tax is low in the UK, a higher rate may not reduce incentives that much; however, there is a high opportunity cost of taxing for pensions. Pension spending does not increase productivity in the economy.

Option THREE

Means tested pensions.

This means pensions are targeted just to those on low incomes, and those who do not have a private pension. This helps to reduce inequality and reduce the total cost of pensions.

However, it creates a very big incentive for people not to save and avoid getting a private pension. This is because if you did save, you would receive little from the government. Therefore, in the long run it may make the situation worse


Encourage private pensions.

Governments could make it obligatory for firms to provide a private pension. Alternatively, they could give more generous tax breaks for private pensions. This is good for reducing the governments pension burden. The concern is that some people may not have sufficient private pension provision when they retire. Therefore, there is still a need for means tested pensions.

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SOWWIE CAN YOU PLEASE QUICKLY RUN OVER THE SUPPLY FACTORS FOR THE MRP AND THEIR RELEVANCE ?



MRP is about the demand for labour, not the supply

MRP = Marginal Revenue Product.

MRP = MPP * MR

MRP depends on the productivity of workers and Price (marginal revenue) of the good produced. Therefore, Labour demand is a derived demand.

Wages are determined by both demand (MRP) and Supply.
  • Supply of labour depends on things like
  • number of qualified workers
  • Time taken for qualifications
  • Non monetary benefits e.t.c

Wage determination

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Effect on inequality of declining pensions

help please: assess the effects on income distribtuion that are likely to result from the sad decline of the UK pensions (2006 labour markets papaer?

Sad decline relates to state pensions being indexed linked. This means they are increased in line with inflation, therefore the value of state pensions falls relative to average wages (which increases faster than inflation.

This means that those who rely on state pensions will become relatively poorer than the rest of the society. There will not be an increase in absolute poverty. Pensioners should maintain the same standard of living. But they fall further behind the rest of society causing lorenz curve to shift further to the right.

Also, some pensioners relying on private pension schemes will suffer from them going under like Maxwell pensions and some other schemes.

Don't forget to refer to data, I'm sure there is another point to be got from using the data.

Evaluation

However, inflation rates for pensioners have been increasing faster than actual inflation, therefore pensioners could actually become worse off.

Not all pensioners will become worse off.
Some will have generous private pensions
Some pensioners will have benefitted from rising wealth, due to rising house prices. From this wealth they can get income (e.g. remortgaging)

Therefore, there will be an increase in inequality amongst pensioner.

Government has given more means tested pensions to old people, who rely on state pensions. This reduces effect on increasing income inequality.

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labour market flexibility and rising employment

HOW HAS LABOUR MARKET FLEXIBILITY HELPED WITH EMPLOYMENT rising?


1. Labour Market flexibility means it is easier to hire and fire workers. Therefore this encourages firms to invest and take on workers. If it is difficult to fire workers, or reduce their hours they may not want to have the risk of increasing costs. Difficulty of hiring and firing workers is said to be a factor behind unemployment in France

2. Flexibility Means wages have been kept at competitive levels. (there is an abscence of trade union power and minimum wages) Therefore, this helps to reduce real wage unemployment.As wages fall to competitive levels demand for labour increases.

3. the growth of temporary and part time workers create new job opportunities for firms who don't want to pay a full time / permanent workers

However Evaluation

1. Employment is rising but employment is only temporary. More people in between jobs
2. Employment has risen but workers feel insecure.
3. Rising employment may be due to other factor like economic growth and not flexible labour markets

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Case for Regional minimum Wage

Can you explain the case for regional variation in the NMW and what other types of questions should i prepare for?


Wages vary throughout the economy. e.g. in London, average wages are higher than in North

A NMW of £5.35 may be above the equilibrium wage rate in the north and therefore cause unemployment



Therefore, lowering the NMW in the north may a rise in employment, especially in low wage industries,

In London a NMW of £5.35 may be too low to have any effect.

Living costs are higher in London so NMW should be higher to reflect this. Without higher London NMW, workers may not be able to afford to live and therefore will move up north.


However evaluation

1. Becomes more difficult to enforce and administer

2. Little evidence NMW has caused much unemployment in the north.

3. Unemployment benefits are the same for different areas. Therefore, there is still same incentive to get a job rather than be unemployed.


Does a Minimum Wage reduce Relative Poverty

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Monopsony and Minimum Wage

Heya can you draw me the diagram for the nmw and monospony power. Im conufsed with Nmw is below the compeititvelevel but above monospony where how do i find the quanitiy demanded is it when D=AC or when the wae rate and demand curve meet?


Unfortunately I don't have time to draw a new diagram, but lets have a look at this monopsony diagram

Diagram of monopsony






The competitive wage is at W1,

The monopsony maximises profits where MR = MC. therefore can pay a wage of W2.

If there is a minimum wage between W1 and W2. The quantity employed will be where the NMW line meets the Supply curve. Basically, in this case a wage above W1, but below W2, should in theory increase the quantity of workers.

Labour Market Imperfections

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Replacement Ratio

HELLO CAN YOU PLEASE EXPLAIN THE REPLACEMENT RATIO THANKS?


The pension replacement ratio relates to the % of working income that is received during retirement.

For example, if you earned £20,000 a year, and on retirement received a combined total of £15,000 in various pensions, your pension replacement ratio would be 75%

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Inflation Explained by Victor Borge



See also: Inflation explained - the economic approach.

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Monopsony's in labour markets

heya i was just wondering if you could tell the advantages and disadvantages of monopsonies in labour markets?

Monopsonies don't really have any advantages as such. The only real beneficiaries are firms, who are able to pay lower wages and make more profit. From a workers point of view, monopsonies are bad. They lead to lower wages, quantity of workers is less than in a competitive market and it is more likely conditions will be worse.

See: Monopsony and labour market imperfections

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Evaluation of Outward Looking Growth Policies

problems of outward looking policies (export led growth)

Outward looking policies to increase trade include:
  • free trade
  • devalutaion
  • absence of susbsidies.

1. Developing countries may not be able to compete, especially with new developing industries. infant Industry argument difficult to promote growth.

2. Devaluation can lead to inflation.

3. May require investment in transport and infrastructure. Success of outward looking policies depends on whether there is a framework for trade or not.

4. export industries may require foreign investment and import of foreign workers.


benefits of outward looking policies.

  • specialisation
  • economies of scale
  • world growth
  • increased competition, incentives to cut costs

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External Finance for Developing Countries

What causes external financial difficulties for developing countries?

  • Difficulty of attracting foreign capital flows, will lead to current account deficit.

1. Overvalued exchange rate, makes exports more expensive and makes it less attractive to invest in the country.

2. corruption and poor credit history

There is No guarantee money will be well used. People feel investment is risky, because of track record. Firms require a higher return on investment to make the risk worthwhile.

3. Poor infrastructure.

Makes investment less successful


However, developing countries have certain advantages:

  • low wage costs
  • scope for growth
  • natural resources
  • examples of India and China in attracting external finance

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Why Economic Growth does not always benefit developing countries

Discuss Factors that caused a decline in economic and social development in some countries in 1990s, during a period of worldwide economic growth.


Why are many countries unable benefit from global economic growth. For example, growth rates in many sub Saharan African countries have lagged miserably behind growth rates in more developed countries. However, the experience of China, and to a lesser extent India, show that developing countries are not doomed to negative or low growth rates.

Factors that Can Prevent Developing countries experiencing Economic Growth

  • Specialisation in one Commodity

Developing countries may focus on production of one primary product. e.g. Cuba depends on Sugar.

Economic growth doesn't mean demand for all commodities increases. Sugar has a low income elasticity of demand, rising incomes means a smaller % increase in demand. Therefore, economic growth does not translate into higher demand for these goods.

Furthermore, the prices of commodities can easily fall due to excess global supply. Therefore, countries who rely on this product see a fall in revenue.

This is important because demand is very inelastic for these goods. Increase in supply causes big fall in price and incomes. It is important because a high % of revenue can come from one good. In recent years, coffee has been a good example of a commodity with a falling price.


Structural weakness

Many developing economies doesn't have sufficient transport and infrastructure to make the most from trade. Low levels of human capital mean the economy struggles to grow and diversify into manufacturing industries. However, the cheap labour costs may encourage inward investment in labour intensive industries. This has been one of the main reasons for China's success.

Agricultural based economy.

Countries who rely on agricultural output may suffer from adverse weather conditions. E.g. a prolonged drought in sub Saharan Africa can lead to loss of farming income and therefore lower growth.

Internal Conflict

Internal conflict or mismanagement can lead to declining living standards for many. E.g. war brings about lower life expectancy and deters foreign investment.

Corruption and Mismanagement

Government in many of the poorest developing countries misuse Aid and the proceeds of growth.

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Does Aid Increase Economic Welfare

Does AID increase economic and social development for developing countries?

Advantages of aid.

1. Provides foreign capital which can be used for investment and increasing productive capacity of the economy.
  • However, a large % of aid is tied aid. This means it is fixed for certain investment projects which benefits the donor countries. In a sense this is not really aid, but it is classed as Aid. (e.g. building of dams in Argentina)

2. Can be important for solving economic, environmental and food crises. Without aid the developing country would struggle to rebuild. e.g. after tsunami disaster.
  • However, there is concern aid can lead to dependency. Developing countries come to rely on aid and lose incentives to improve productivity. This depends on the type of aid given. E.g. some aid can be just to improve infrastructure, this is more beneficial than handouts.

3. Food aid can harm local farmers. An increase in supply from the west can drive down market prices. Because demand is inelastic for food, lower prices can lead to lower revenues. This was a real problem when the EU "dumped" its surplus on world Markets.
  • However, if food aid is temporary, e.g. in a famine low prices are not concern. Food aid needs to be short term and specifically targeted to avoid this potential problem.

4. Foreign aid has its limitations in increasing productive capacity. Arguably long term growth requires building up trade and new industries.
  • However, aid could play a role in improving trade performance. For example, aid could be used for education and training to increase labour productivity. This enables the country to become more competitive in the long run.

5. Aid can be used to prevent environmental damage. E.g. securing the purchase of rainforest and prevent exploitation of natural resources.
6. Aid and Corruption
A real problem with Aid is making sure it gets to the targeted people. This can actually be quite difficult in countries with more infrastructure. The problem is exacerbated when countries experience civil war. Unfortunately, aid often does not reach the intended recipients.


There is no guarantee that Aid will improve economic and social development; however, there is no reason why it cannot increase economic and social development, if this it is targeted in the right way.

See also:

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The effect of Removing an indirect tax

EXPLAIN THE REMOVAL FACT OF AN INDIRECT TAX UPON THE MARKET FOR A PRODUCT.

  • The supply curve will shift to the right. This will cause a lower price and higher quantity.
  • The effect depends upon elasticity of demand. If demand is inelastic removing an indirect tax will cause a big fall in price.
  • If demand is elastic it will cause a small fall in price and large increase in quantity.
Elasticity of demand

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Globalistaion and financial markets

HOW HAS THE DE REGULATION OF GLOBAL FINANCIAL MARKETS ACTED AS A FACTOR OF THE INCREASE OF GLOBALISATION?

Yes, But I would suggest it is quite a limited factor.

Deregulation of financial markets has made it easier to transfer money to investment projects. Therefore, it has helped increase inward investment, which encourages global MNCs to enter developing countries.
Deregulated financial markets make it easier for workers and firms to move from one country to another.

However,

Restrictions of global finance still remain. Especially in countries like China. China has restrictions on residents buying foreign currency. But, China typifies the success of globalisation

Globalisation is due to many other factors
See: What explains the rise of globalisation?

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Advantages and Disadvantages of EU Membership

what advantages and disadvantages does membership of the EU bring to the UK? and what would happen if we left the EU


related posts on EU:


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EU Labour Market Policies and Wage differentials

Evaluate how EU labour market policies might affect wage differentials between men
and women in the UK?

not an easy question. Need to first be aware of EU labour market policies. These are from the EU social chapter

EU Labour Market policies include:


  • Maximum working week
  • Minimum wage
  • Extension of Full time rights to part time and temporary workers
  • Works councils,
  • parental leave,
  • regulation on sexual harassment,
  • minimum wage,
  • minimum four weeks' paid holiday,
  • 40-week maternity leave

  • Extension of full time rights to part time workers may benefit women more than men. This is because women are more likely to work in part time / temporary jobs.
  • The same is true for minimum wage legislation. It is more likely to benefit female workers, because they are more likely to do part time / service sector jobs, which benefit from a minimum wage.
  • However, on the other hand it could be argued the increased legislation may make firms less willing to take on female workers. If women are likely to receive generous maternity leave, the firm may be inclined to pay less so that it can afford to pay maternity leave (more likely they will just not get taken on)
  • Maximum working week is more likely to apply to men. Women are more likely to do part time / temporary jobs. This will reduce the total take home pay for men (as opposed to hourly wage) This will bring total earnings of men closer to women.
  • The legislation has its limitations. Differences in wages are due to many factors such as; women choosing lower paid jobs, taking career breaks and therefore not getting promoted. Therefore these legislation may not tackle the fundamental reasons for imbalances.

See also: Why Women Get paid less than men

The EU and the Social Chapter

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The effect of Higher spending on Education

  • Assess the impact of an increase in Government spending on education and health care.

1. Government spending G is a component of AD. Therefore there will be an increase in AD and potentially economic growth.

2. There will be an increase in government borrowing, to fund the increased expenditure.

3. Higher AD may cause inflation.

4. In the long term higher spending on education, and to a lesser extent health care, may cause an increase in labour productivity and therefore AS. Over time AS may increase at a faster rate and lead to an increase in the underlying trend rate of economic growth.

EVALUATION

5. Other components of AD. The effect of higher G depends on other components of AD. For example, if consumer spending was low due to lower house price, then AD may not increase at all. If the government increased taxes to pay for the higher spending then AD would not increase.

6. Multiplier Effect. Higher G may lead to a multiplier effect. This means the initial increase in government spending causes a bigger final increase in GDP. E.g. nurses and teachers have more to spend so others benefit.

7. Side Effects. To spend more the government need to borrow. However, this could cause crowding out. This means the government spends more, but because the private sector lend money to the government they have less to spend themselves; therefore AD doesn't actually increase.

8. Efficiency of spending. It depends on how efficient the government spending is. Spending on education may not increase labour productivity

9. State of Economy. The effect of higher spending government spending depends on the state of the economy. For example, if the economy is in recession then an increase in AD will help to increase growth without causing inflation, but if the economy is at full capacity it will cause inflation.

10. Time Lags. The effects of higher government spending will take a long time to have an effect.

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Policies to reduce poverty

Hello apart from taxes and benefits what other measures can be used to tackle poverty.

1. Minimum wage.

Min wages increase incomes for the low paid. This helps to reduce relative poverty.
Min wages may also increase incentive to get a job.
However, min wages may cause unemployment (in competitive labour markets)
Min wages benefit most second income earners and students. Often the poorest aren't working at all.

Does a minimum wage reduce poverty?

2. Economic Growth.

increasing economic growth increases Real GDP. The "trickledown effect" says that everyone will ultimately benefit from economic growth.
However, there is no guarantee that economic growth will reduce relative poverty. Often those who benefit the most from economic growth are those with high skills and assets. The underclass of low skilled and poor education often do not benefit.

3. Better Education and training.

The cause of much unemployment and low wage jobs is lack of qualifications and training.
However, there is no guarantee spending on education and training will lead to better skills in the workforce, some people may be reluctant to attend training schemes.
Also the benefits are very long term and hard to quantify.


Poverty, income inequality and economic growth

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Government policies to increase labour market flexibility

Discuss policies to Increase labour Market Flexibility

(apart from reducing working hours and more flexible shifts)

Labour market flexibility refers to free movement of labour within labour markets. It also means wages, hours and conditions can change in response to different factors.

1. Reduction of Minimum wages / Trade Union Power.

Minimum wages can cause wages to be kept above the equilibrium. This means wages are not flexible and responsive to market conditions. If minimum wages are abolished wages can be determined by market equilibrium. This increases flexibility. However, minimum wages in the UK have not caused much , if any, unemployment, therefore it suggests that minimum wages are not much above the equilibrium. Min wages can also protect against the abuse of monopsony firms. Reducing min wages reduces protection for workers.

2. Education and training.

If workers have better education and training it is easier for them to move in between jobs. If workers are skilled and trained it will be easier to take on jobs in any sector. This is important in a fast changing economy. However, there is no guarantee that the education and training schemes will work. Also, if workers become highly trained they may be more reluctant to move; they may expect better and more secure job contract.

3. Government legislation to protect Temporary workers.

If temporary workers have legislation against unfair dismissal and the promotion of good working conditions it may encourage more people to take on temporary contracts, this is good for firms who need the flexibility of temporary workers. However, government legislation may actually make it more difficult to employ temporary workers and therefore, this policy may not actually increase flexiblity

other policies

  • better childcare provision.
  • This enables women to take on more part time jobs

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Problems of Free Trade for Developing Countries

Free essay: Problems of Free Trade for Developing Countries

1. Infant Industry Argument.

If developing countries wish to develop new manufacturing industries they may struggle to compete on an international scale. Therefore, in the short run at least, they may need tariff protection to enable their industries to develop. After a few years they may be able to reduce these tariffs. Many developed countries used tariff protection in the past, especially the Asian "Tiger Economies"
In this regard, it is said free trade usually benefits developed countries more than developing countries.

2. May Prevent Diversification

The lewis model of development suggests that development needs economies to switch from agricultural sector to industrial sector. This is because the marginal cost of production in agriculture is nearly zero. Therefore, moving to industrial production will be relatively costless. However, to diversify an economy protection may be needed. Otherwise developing economies will be stuck with the production of primary products. This makes the economy vulnerable to fluctuations in prices; there is also a low income elasticity of demand for products

3. Environmental Damage.

Free trade and the force of globalisation may lead to exploitation of natural resources.

see also: arguments against free trade

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Constraints To Economic Growth in Developing Countries

Assess Three Constraints To Economic Growth in Developing Countries (Edexcel Unit 5b)

Lack of Savings. The Harod Domar model suggests the levels of savings are important for determining levels of investment and hence the rate of economic growth. If there is a lack of savings, it limits investment and therefore, there is little prospect of economic development. However, sometimes the level of savings is misused on unproductive investment projects. The important thing is not level of savings but the economic management of investment resources. Also, low savings may be countered by foreign investment

Corruption. This can cause foreign aid to be siphoned off into the bank accounts of politicians. It means that resources for development will not be used in their entirety for economic development. In some cases the % of corruption can be very high. However, this has not stopped some countries from developing e.g. China. Corruption is endemic in the world. It is a major problem in China, but hasn't stopped growth. Also, corruption may just take a % of investment, therefore there are still funds being used for investment.

Human Capital Lack of human capital is a constraint on growth. To diversify the economy and move towards industrialisation it is necessary to have skilled labour. The world bank say human capital accounts for about 65% of economic development. Therefore, it can be a very significant constraint to growth. In many cases attempts to industrialise the economy suffered from lack of human capital. However, in many industries competitiveness can be achieved through low wage costs, as in China. Therefore, for labour intensive industries low wage costs can be more important than labour productivity.

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Working Time Directive

The working time directive is an EU initiative to safeguard the amount of hours worked. It wasn't adopted in the UK until 1998. It was introduced by EU in 1993.

Basically the WTD includes rights such as:

· A maximum working week of 48 hours
· A rest period of 11 consecutive hours a day
· A rest break when the day is longer than six hours
· A minimum of one rest day per week
· The statutory right to four weeks' holiday
In addition:
· Night working must not average out at more than eight hours at a stretch
· Workers will be entitled to a free health check-up before being employed on night work and at regular intervals thereafter

Possible Essay questions on the Working Time Directive:

Discuss the potential costs and benefits of abolishing Working time directive.

Benefits of Working Time Directive.

  1. Good for workers.
  2. Could increase productivity, if workers are tired their productivity falls.
  3. Increases motivation. Some workers feel exploited if they are forced to work long hours.
  4. Good for safety of workers, especially in industries like driving.
  5. gives protection to workers working for monopsonies or have no trade union to represent
  6. Could increase employment. Firm needs 2 workers, rather than 1 worker doing 70 hours.
Disadvantages of Working Time Directive

  1. Some workers may wish to work longer hours. Prevents workers gaining overtime, an important source of income for some workers.
  2. Some jobs have variable hours, therefore at critical times it is important to be able to work longer hours if necessary. Some jobs are very seasonal like strawberry pickers.
  3. Discourage investment. Firms may see the working time directive as an unnecessary burden and indication of lack of flexibility. This may discourage firms from starting up. UK may attract more inward investment if it got rid of working time directive

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Relative and Absolute poverty

hello why do we use relative poverty as a measure rather than