Policies to Improve Competitiveness (Exam Answer)
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Policies to Improve Competitiveness (Exam Answer)

May 23, 2019



okay hi there and welcome to a video looking at competitiveness policies this is an example exam answer for a level macroeconomics and here's our question with reference to a country of your choice evaluate policies that might be most effective in improving competitiveness just before I take you through my suggested answer some key advice for essay questions available this is particularly for Edexcel students but relevant to other boards as well it's really important application in your answer it's impossible now to get to level four analysis without some application contextualized evaluation also important don't just write pure generic evaluation points try to contextualize it to the question depth is much more important than breath you never never need more than two world develop points for each question you answer build depth of analysis to a chance of reasoning and also through diagrams you don't need an introduction in the 30 minutes let's say you haven't got time to do that it's good technique even longer essays but this is an exam and there's no point introducing lengthy introductions and lengthy definitions but you will need a final conclusion from there the final recent comment to move into level three for evaluation so I'm going to be looking to make two points within this question on policies to improve core passage must make two points evaluate to your points and then come to a final reasoned conclusion competitiveness is the ability successfully to sell goods and services overseas at a profit in overseas markets I've chosen Poland as my example it's always good to build up contextual information on one or two countries of your choice Poland is inside the single market but actually maintains their own floating currency there's a lot E and 1/4 of Polish exports go to Germany good application there so one policy that might help improve the price competitiveness of Poland is for the central bank perhaps in Poland to try to manipulate the exchange rate joins within the currency market perhaps by reducing interest rates or by directly selling the Polish currency there's a lottery in borrowers with a view to depreciating currency why well because a weaker currency makes polish products relatively cheaper Western European markets in Germany in France and Holland for example that might lead to expenditure switching effects as the demand for Polish exports goes up and also because they want for imports contracts as they become more expensive consequence of this chain of reasoning connective there is that Polish exporters will make more profits and this could then help them to increase our investment which in turn could lead to increase productivity which would help to maintain competitiveness in the long term so my core point here is that the Polish central bank could try to achieve a competitive depreciation of the of the is the lotty against the Europe that's my first application and analysis point then I need to evaluate the points I've made that's really quite important so although in theory a depreciation of this Lahti might improve competitiveness in Poland in practice in reality the benefits of a weakened currency might be in roaded reduced by some of the negative consequences of fallen currency for example Poland imports things like animal feed fertilizers vehicle parts they import pharmaceuticals from other EU countries good application there so when the external value of a currency goes down the domestic price of imports goes up this leads to analysis deterioration in the terms of trade Poland will essentially have to export more to pay for those imports and crucially it can and does lead to an increase in cost push inflation and inward shift of the short and aggregate supply curve and higher inflation cuts with incomes of consumers and also reduces the profits of Polish companies higher relative inflation can therefore make Poland less competitive inside the single market so can you see what we're trying to do here trying to build two points and some chunky analysis and some substantial valuation analysis diagram will help support the point I've made showing that depreciation of this Lahti could lead to cost-push inflation what I've tried to do here also it makes make sure the diagram is contextual since the general price level for Poland it's the real GDP for Poland in which if they're of having it supply my second point my second points my second policy is in this slide a second approach to improving competitiveness could be to introduce supply-side reforms to the Polish economy Poland used a bit of application here was once a transitional economy moving away from socialism a variety of market bernly policies were introduced including cuts in corporation tax and income tax then there I'm contrasting Poland's taxes on income and then basically the 18% higher rate 32 percent contrasted with 20% and 40% in the UK then build your analysis if you cut income tax rates and corporation tax rates that encourages an increase in business startups in theory and encourages inflows of foreign investment into Poland that investment increases the country's capital stock which increases labour productivity which in turn helps to increase when we open capita incomes and here with investment also creates extra supply-side capacity and at some of which can be exported indeed foreign owned firms are said to account for over half of Poland's exports the revenue from transnational businesses locating and manufacturing of Poland also generates extra tax revenues for the government so second point is that supply-side reforms in particular tax cuts could make Poland more competitive however you then need to evaluate that point okay really key exam technique market firmly supplanted policies can improve competitiveness but they can also come into conflicts with other macro objectives there's my evaluation point for example if you cut direct taxes and incomes and profits that could lead to more inequality and relative poverty higher inequality could actually damage competitiveness because if there's a bigger gap between the middle class and poor households compared to the rest of society that means that fewer people perhaps can afford education for your people can afford the relevant health care and my point here is event if education suffers and the country will not be improving its human capital and that can lead to higher an employment and ultimately lower productivity which is a key factor affecting competitiveness I can take a look at this slide and think about the structure of the answer if you want to take a screenshot or something of this and put into your notes that'd be great what we're trying to do here is build our analysis but then evaluate the point we've made we've done that twice and that's all you can do in 30 minutes okay it's not a it's not a lengthy university style asset it's a 30 minute 25 marker but we do need to finish off with a conclusion your exam board will tell you roughly how much they expect from a final reason conclusion this this question has us I offer this conclusion to this question in the long run competitiveness is mainly determined by the supply-side performance of a country therefore I would argue coming to a personal view here that Poland should use policies that increase investments in education to build up human capital and also encourage more women into the active labor force Poland that sees does extremely well in the Pisa rankings the tests for maths and science and things exceptional computer programming and investments in early years secondary education provides the best platform for improving non-price competitiveness go back to the question in areas such as innovation adoption of an exportation of artificial intelligence robotics which will matter in the years to come so my conclusion is that in fact instead of tax cuts Poland needs to increase investment in education as it's a long run strategy so there we go before we finish there's the Pisa rankings if you want to take a look at where Poland ranks Pisa has this is the average score of math science and reading please this transfer stands for the program for international student assessment it's a it's an objective test of student attainment in math science and reading Poland came in 19th in the latest data the UK came in 23rd so the UK is actually below that of Poland and the United States came into 31st so willing that those countries run at the top that Singapore Hong Kong Japan counted up their Finland South Korea those countries have very high scores and are widely regarded as some of the most competitive countries in the world okay there's my answer to this question thanks for joining in

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