Saturday, April 4, 2009

Improving Your Evaluation Skills

Good one from Geoff Riley. Crucial for GCE candidates sitting for Economics exam in June 2009

As for me, I always recommend my students to ‘CONTRADICT’ what they have written initially. The previous statement could be a theoretical view that is sometimes right, BUT not all the time

Some random examples:

(1) Ideally, the recent cut in interest rates to 0.5% by Bank of England should be able to revive economic activities. However, there is an outweighing factor & that is lack of consumer confidence. This explains why spending & investment activities fail to pick up

(2) Cut in tax rate should be able to increase household spending. But given the current economic turmoil, the extra disposable income is likely to be saved for rainy days or use to pay off their mortgage debts. Therefore we may not witness a significant increase in consumption

(3) Privatisation as one of the supply side policies may no longer relevant in UK context. This is because many firms have undergone privatisation during the era of Mrs. Thatcher & was continued by her successor, John Major. Furthermore some economists argued regarding the wisdom of this policy since some firms were renationalise such as Railtrack in 2001

(4) Increase in tariffs may not necessarily cause the imported goods to be expensive if the firm is willing to absorb part or the whole tariffs. In this case, firms are still able to sell at their old price thus causing harm to domestic companies

It could also be some sort of ‘SUGGESTIONS’ or the issue of ‘SHORT RUN vs. LONG RUN’

(1) GM should not pass on the increase in the price of raw materials like rubber & steel to end consumers given that the car industry in US is so competitive. Any attempt to do so may worsen the situation as American consumers will substitute away to the more fuel-efficient Japanese cars

(2) In the short-run, increase in crude oil prices will cause companies to pass on the increase in production costs to end consumers. Somehow in the long run, these firms will likely attempt to mitigate the impact via an increase in investment onto capital goods. This will counter the backward shifts of AS

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