herald

Saturday 18 August 2018

Leaving Cert Economics

Good time management and clarity of answers are essential

THIS two-and-a-half-hour paper is probably the most current in terms of ever-changing facts and figures.

Section A is worth 25pc of the overall mark and six questions must be answered out of nine. It is worth noting that this section has moved away from definitions towards longer questions involving stating and explaining three or more points.

The long questions involve a split between micro, macro and general current affairs economics questions. Four questions out of eight must be answered. It is worth noting that the micro economics questions are now more difficult and macro questions tend to be two parts text book and one part current or recent changes in the Irish economy. This article looks at the current stories affecting the macro syllabus and I have concentrated on the basic points needed.

Proposed new water charges

Budget 2010, announced on December 9, 2009, indicated that a system of water metering for homes will be introduced. Water charges will be based on the amount consumed above a free allocation. The main economic effects are:

1 Reduce consumption/discourage waste;

2 Generate revenue for the service provider/broaden the tax base;

3 Improve quality of water supply/distribution of water;

4 Encourage investment in alternative technologies;

5 Helps reduce need to raise direct taxation.

Minimum wage

Dail votes 80-72 to lower minimum wage to €7.65. The main economic effects are:

1 Lower labour costs for employers;

2 Reduced standard of living for employees;

3 Lower selling prices for consumers;

4 Reduced aggregate demand/spending by consumers;

5 Investment stimulus for entrepreneurs.

National Debt

At the end of December, 2010, the National Debt of Ireland was €93.4bn. This compares with €75.2bn at the end of 2009. The rapid increase over the past three years is a result of exceptionally high budget deficits in 2008, 2009 and 2010. Fortunately, Ireland entered the downturn with a relatively low level of debt.

The associated economic problems are:

1 Opportunity costs involved for other essential funding areas;

2 Increased burden on taxpayers;

3 Increased annual interest repayments (€4.8bn);

4 Diminished international credit-rating;

5 Euro stability pact requirements.

The major reasons for the increase in national debt are:

1 Increased current budget deficits;

2 Borrowing for capital purposes/self-liquidating debt;

3 Social Investment eg public amenities.

Currency Fluctuations

Sterling slid to a five-month low against the euro in October 2010. Outline two possible economic effects of sterling (£) falling in value relative to the euro (€) for the Irish economy.

1 Import Prices Cheaper

This has resulted in a lower import bill for Irish producers, increase in imports from the UK/more Irish people holidaying in the UK.

2 Exports Prices Dearer

Exports from Ireland to the UK have therefore become less competitive. This has resulted in reduced exports to the UK /fewer UK visitors holidaying in Ireland.

Unemployment Crisis

In December 2010, the unemployment rate in the OECD area was 8.5pc, well below Ireland's 13.5pc figure.

The main causes of the recent increases are:

1 Economic recession/cyclical unemployment.

2 Relocation of industry.

3 Irish companies exporting to US and UK.

4 Banking crisis.

5 Reliance on construction sector/structural unemployment.

New measures propsed to stimulate job creation

Actions the Government could take to improve the competitiveness of small firms include:

1 Reduce the minimum wage/wage restraint;

2 Reduce utility charges;

3 Reduce taxation;

4 Reduce bureaucracy;

5 Subsidies to firms;

6 Develop infrastructure.

Fiscal Crisis

Between 2000 and 2009 current Government expenditure rose from €26bn to €60bn. The 309,000 employees in the public sector are one reason being attributed to the rise. Identify possible ways in which the Minister for Finance could reduce the public sector wage bill.

1 Limit the numbers employed in the public sector, eg ban on recruitment;

2 Limit pay increases in the public sector;

3 Introduce a voluntary redundancy package in the public sector;

4 Privatise state companies;

5 Reduce perks for state employees, eg pensions.

Inflation rises to 1.7pc

The economic effects of this development on the Irish economy are:

1 Lower standard of living;

2 Increased wage demands;

3 Loss of competitiveness;

4 Loss of employment;

5 Increased disparity between different sectors of the population.

The Recession

The economic consequences of a slower rate of economic growth for Ireland are:

1 Lower inflation: now 1.7pc but was 6.6pc in November 2009;

2 Increased unemployment: 439,200 on the live register and the rate of unemployment is 13.4pc;

3 Falling government finances: tax revenues have fallen €14bn since 2007;

4 Lower standard of living: the average income per head has fallen;

5 Migration: it is estimated that 75,000 Irish people will emigrate in 2011 from Ireland;

6 Funding difficulties for infrastructure: our capital budget has been slashed in recent budgets with local government capital budgets cut by half a billion euro.

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