SECTION A MACRO

Question 1

Explain the likely effect of a fall in the marginal propensity to save on the value of the multiplier if other things remain equal. [2 marks]

Answer 1

The value of the multiplier is likely to increase (1), due
a decrease in withdrawals (1).

Question 2

Explain one possible reason for the fall in the marginal propensity to save in the UK. [2 marks]

Answer 2

The decrease in the MPS reflects a rise in the marginal propensity to consume (1) due to rising consumer confidence (1)
Decrease in MPS due to rise in marginal propensity to tax (1) to reduce the budget deficit. (1)
Low interest rates (1) reducing the incentive to save/lower rate of return (1)

Question 3

Explain one likely reason for the change in UK income inequality since 2007. [4 marks]

Answer 3

Global Financial Crisis started in 2008
Changes in taxation and/or government policies
Inequality fell due to falling incomes at the top of the distribution
(refer to gini coefficients given)

Question 4

Define hot money flows

Answer 4

Short-term capital movements across countries
Driven by speculative investments seeking high returns
Characterized by their speed and volatility
Often in response to changes in interest rates, exchange rates, or political instability

Question 5

Gini coefficient value significance

Answer 5

Gini coefficient = level of inequality
Gini coefficient falling = inequality falling
Gini coefficient is area between graphs as a proportion of the whole area under line of equality
Gini 1 = perfect inequality, Gini 0 = perfect equality