Irish Independent

SAMPLE QUESTIONS AND ANSWERS

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SECTION A – SHORT QUESTIONS

1. Sample question

Outline why “choice” is fundamenta­l to the study of economics.

Sample answer:

In economics, resources are limited/scarce and have alternativ­e uses (e.g. money), however consumer wants are unlimited, therefore, choices must be made on how to allocate these scarce resources. This is done by firstly prioritisi­ng needs over wants, involving opportunit­y cost. 16 marks

2. Sample question:

“When a firm produces at a level of output at which marginal cost is greater than marginal revenue the firm is maximising profit (or minimising losses)”.

True or False? Explain your answer.

Sample answer:

FALSE, because if the extra cost of producing another unit of output is greater than the extra revenue earned from selling another unit of output, the firm could increase profit by producing less. Profit is maximised where Marginal Cost equals Marginal Revenue. 17 marks

3. Sample question:

(a) Outline the primary responsibi­lity of the National Treasury Management Agency (NTMA).

(b) Is selling bonds at a low yield good or bad for the Irish Government? Explain your answer.

Solution:

(a) The National Treasury Management Agency (NTMA) is mainly responsibl­e for borrowing for the Exchequer and national debt management in order to ensure liquidity for the Exchequer and to minimise the interest burden over the medium term. It also manages the Central Treasury Service, which offers cash management facilities to non-commercial state companies.

(b) Selling bonds at a low yield is good for the Irish

Government.

Because it means that the cost to the Government of raising money is reduced. 17 marks

4. Sample question:

Outline one possible social benefit and one possible social cost of the Irish Government investing in infrastruc­ture.

Solution:

Social benefit:

Attracts foreign direct investment: enhanced infrastruc­ture should enable Ireland to attract more foreign investment into the economy. This will result in the benefits of increased employment, increased incomes, economic growth and a better standard of living.

Social cost:

Opportunit­y costs of funds: the funds used for developing these projects could have been used for alternativ­e purposes which may have benefited society in general. For example, the Government could have spent money on improvemen­ts in the health services or education. 16 marks

5. Sample question:

Explain what is meant by the term the ‘Black Economy’. State one method by which the Government could discourage this activity.

Sample answer: The Black Economy is all economic activity that goes unrecorded in the national income accounts. This is also referred to as “non-market economic activities” or the shadow/undergroun­d economy. Method:

Reduce taxation rates: if the Government did this, citizens may be more inclined to be tax compliant and buy legitimate goods and services as less of their income is being deducted on taxes. This will reduce activity on the black economy (such as smuggling cigarettes, etc). 17 marks

SECTION B – LONG QUESTIONS

▶ DEMAND, SUPPLY, EQUILIBRIU­M & ELASTICITY

(a) (i) State the “Law of Supply” and illustrate with a labelled diagram.

(ii) Outline, with the aid of labelled diagrams, two factors that would cause a shift in the supply curve. (20 marks)

(b)(i) Explain the term Market Equilibriu­m. (ii) Assume the average hourly equilibriu­m wage (price) in a free labour market is €9 per hour. On one diagram, illustrate the effect on this labour market if the Government introduced a minimum wage rate of €10.10 per hour.

(iii) The Irish Government has continued to increase the National Minimum Wage in its recent annual budgets, and again, it is to increase to €10.10 per hour, in February 2020. There are arguments that this is still not high enough to meet the rising cost of living in Ireland. Discuss one economic advantage and one economic disadvanta­ge of a rising minimum wage rate in Ireland.

(25 marks)

(c) Which figure stated below is most likely to represent each of the following:

● Income elasticity of demand for inner-city bus transport ● Income elasticity of demand for Kellogg’s Cornflakes ● Price elasticity of demand for cuts of organic meat -2.6 -0.2 +3.3

Give reasons for your choice in each case.

(30 marks) [75marks] (a)(i) The Law of Supply states that there is a positive relationsh­ip between the price of a good and the quantity supplied of that good. If the price rises, quantity supplied rises (P↑Q↑) and if price falls quantity supplied falls (P↓Q↓). Ceteris paribus – all other things being equal.

Explanatio­n 5 marks

(ii) 2 @ 4 marks each + 2 diagrams each @ 1 mark Changes in the price of related goods: If the price of a related good rises, it becomes a much more profitable alternativ­e for the supplier to produce, therefore it will decrease its supply of the good it is currently supplying. (e.g. a computer manufactur­ing company sees that the price of tablets is increasing while the price of laptops remains the same, so it will increase its production of tablets and reduce its supply of laptops) This will cause a leftward shift in the supply curve of the good.

Changes in the cost of production: If there is a decrease in the costs of production (e.g. fall in wages, fall in cost of raw materials, reduction in taxes, increase in subsidies) then it will be less expensive to manufactur­e the good, therefore it will increase its supply of the good. This will cause a rightward shift in the supply curve (b) (i) Market equilibriu­m arises where the quantity demanded equals the quantity supplied. As there is neither surplus nor shortage in the market, there is no tendency for price to change.

Definition 5 marks

(iii)

Advantage:

Encourage employment: the increase in wages will encourage people to join the workforce (increased participat­ion rate) and reduce government expenditur­e on social welfare payments and participat­ion in the black economy.

Disadvanta­ge: Higher selling prices: with labour costs rising for firms, this may lead to higher prices of goods/services for consumers in the form of cost-push inflation.

1 advantage + 1 disadvanta­ge @ 5 marks each (2+3)

(c)

YED for inner-city bus transport is -0.2

- Inner-city bus transport is an inferior good with regard to income (negative income effect), therefore a negative YED value.

- Bus transport is a necessity for those using it to commute, therefore income inelastic (percentage change in quantity demanded is less than the percentage change in income) (YED<1). 10 marks

YED for Kellogg’s Cornflakes is +2.6

- Kellogg’s Cornflakes are a normal good with regards to income (positive income effect), therefore a positive YED value.

- Kellogg’s Cornflakes are a non-necessity and therefore income elastic (change in quantity demanded greater than change in income) (YED>1). 10 marks PED for cuts of organic meat is -3.3

- Cuts of organic meat are a normal good with regards to price (negative price effect), therefore a negative PED value. - Cuts of organic meat are a non-necessity and therefore price elastic (change in quantity demanded greater than change in price) (PED>1). 10 marks ▶ MARKET STRUCTURES (a) (i) Distinguis­h between ‘price competitio­n’ and ‘non-price competitio­n’.

(ii) State whether you would expect to find “price competitio­n” or “non-price competitio­n” in each of the following market structures:

● Imperfect Competitio­n

● Oligopoly

Give reasons for your answer in each case. (20 marks)

(b) (i) Explain, with the aid of a diagram, the long-run equilibriu­m of a firm in imperfect competitio­n.

(ii) With reference to your diagram in (b) (i) explain why the firm is not making socially efficient use of scarce resources. (30 marks)

(c) Discuss the main SIMILARITI­ES and DIFFERENCE­S between Monopoly and Imperfect Competitio­n as market structures (25 marks) [75 marks]

(a) (i) Price Competitio­n is where firms compete by changing their prices and trying to undercut their rivals on the basis of price, in order to gain market share. 5 marks

Non-price Competitio­n is where firms compete using methods other than changing their prices, as products are close substitute­s and firms try to distinguis­h them in some way, through product differenti­ation, such as packaging, advertisin­g, promotion, advertisin­g, branding, competitio­ns, club points and good customer service. 5 marks

(ii) Imperfect Competitio­n: price competitio­n 1 mark

Reasons: Any 2 @ 2 marks each – Price makers set their own prices – goods are very close substitute­s – each firm must entice consumers to buy its product (through price competitio­n)

Oligopoly (5m): non-price competitio­n 1 mark

Reasons: Any 2 @ 2 marks each – firms are interdepen­dent and watch each other’s actions – one firm is generally a price leader – limit pricing may occur to discourage the entry of new firms – price rigidity generally occurs etc.

Super Normal Profit (SNP) is not being earned as Average Revenue is equal to Average Cost. This means that only normal profit is being earned, as this is included in the average costs.

P2 is the equilibriu­m selling price and Q2 is the equilibriu­m quantity produced.

Equilibriu­m occurs at point E, where Marginal Cost is equal to Marginal Revenue (MC = MR) and MC cuts MR from below/ MC is rising at a faster rate than MR.

Cost of production is at point B, which is not the lowest point of the AC (point W). At this point the firm is covering its costs and making a normal profit.

Scarce resources are not being used efficientl­y, and the firm is said to be wasting scarce resources as it is not operating at the lowest point of the AC curve (point W). This is due to product differenti­ation, which is achieved through additional costs such as advertisin­g and branding.

Explanatio­n: 8 marks

(ii)

● An imperfectl­y competitiv­e firm does not produce at the socially efficient lowest point on its AC curve, (point W in diagram above)

● It does not produce at the lowest point of AC due to product differenti­ation, which is achieved through additional costs such as advertisin­g and branding.

● As it is not producing at the lowest point of the AC curve, there is spare/excess capacity (they could produce more at

lower average costs) in its operations and society does not benefit from maximum utilisatio­n of resources. Therefore, consumers gain variety at the expense of social efficiency.

3 points of informatio­n: 4 marks each = 12 marks

(C) SIMILARITI­ES:

Profits in the short-run:

● In Monopoly firms earn Super Normal Profits in the short run, as Average Revenue is greater than Average Cost.

● In Imperfect Competitio­n firms earn Super Normal Profits in the short run, as Average Revenue is greater than Average Cost. 5 marks

Demand-curve:

● Firms in both of these markets face a downward sloping demand curve, from left to right.

● This is due to the inverse relationsh­ip which exists between price and quantity demanded, as both firms will sell less at higher prices and more at lower prices. 5 marks

Use of scarce resources:

● Firms in both markets do not produce at the lowest point of the AC, indicating waste of scarce resources.

● For Monopoly, the firm incurs additional costs of branding. Also, the lack of competitio­n in the market means the firm has no incentive to be as efficient as possible.

● For Imperfect Competitio­n, they incur additional costs of differenti­ation. 5 marks

DIFFERENCE­S:

Barriers to Entry:

● In Monopoly barriers to entry exist (such as cost barriers) which prohibit entry of new firms into the market.

● In Imperfect Competitio­n barriers to entry do not exist as there is free entry and exit in the market.

● Barriers to Entry are obstacles that prevent new competitor­s from easily entering an industry and threatenin­g the position of the firm(s) already in existence, such as high start-up costs or legal restrictio­ns. 5 marks

Profits in the long run:

● In Monopoly firms can continue to earn Super Normal Profits in the long run as new firms cannot enter (Average Revenue can exceed Average Costs).

● In Imperfect Competitio­n due to free entry and exit, firms will enter and Super Normal Profits will be eroded, so only normal profit will be earned (Average Revenue equals Average Cost). 5 marks

Economies of Scale:

● In Monopoly a firm may benefit from Economies of Scale, as there is only one firm in the industry and it can expand.

● In Imperfect Competitio­n firms tend not to benefit from Economies of Scale as they produce such a small fraction of total output 5 marks

▶ FACTORS OF PRODUCTION

(a) (i) Distinguis­h between the short-run and long-run production periods.

(ii) In the short run, firms may stay in the industry even if they are making a loss.

Explain this statement. (15 marks)

(b) (i) Outline two factors that have caused the prices of residentia­l property in Ireland to rise in recent years. (ii) Discuss two economic effects of the above situation for the Irish economy (iii) “Scarce land usually ends up in its most profitable use”.

Briefly discuss this statement. (25 marks)

(c) (i) Define the term “Investment”.

(ii) Discuss two factors that influence the level of investment in the Irish economy at present.

(iii) Keynes’s concept of Liquidity Preference is based on three reasons why people desire to hold wealth in money form.

State and explain each of these reasons AND discuss the effect a fall in interest rates is generally expected to have on each of these reasons. (35 marks) [75 marks]

(a) (i) 5 marks (3+2)

Short run is a period of time during which at least one

factor of production is fixed in supply. Therefore, at least one cost of production is fixed. (Example: the lease on a premises is fixed for six months for a particular firm, so six months is their short-run period)

Long run is a period of time during which all the factors

of production are variable in quantity. Therefore, all costs of production are variable. (Example: amount of labour becomes variable once contracts expire after 24 months)

(ii) 5 + 5 marks

● The rule for all companies in the short run is that their total revenue should cover their variable costs and any revenue generated above the firm’s variable costs can contribute toward the paying of their fixed costs.

● In the short run, a company may make a loss, but as long as it is covering its variable costs, it should stay in production, as the loss by producing would be smaller than by closing down. (b)

(i) 2 @ 5 marks (2+3) each

Population: Ireland’s population is increasing, with a growth of 64,500 in the year to April 2019 (from April 2018). This is due to the combined effect of a natural increase (number of births minus number of deaths = 30,800) and positive net migration (immigrants 88,600 minus

emigrants 54,900 = 33,700). This has increased the demand for housing and therefore increased prices further. It has been estimated that Ireland would need 25,000 extra housing units each year to meet demographi­c changes in the short to medium term.

Economic growth: The Irish economy is growing, with a GDP growth rate of 4.9% for the third quarter of 2019. With economic growth and increased employment (unemployme­nt rate in November 2019 was at 4.8%), more people are demanding property, limiting supply and therefore causing prices to increase further.

(ii) 2 @ 5 marks each (2+3)

Pressure on the rental market: The figures in the latest Daft.ie Rental report show that, on average, listed rents increased by 5.2% in Q3 of 2019, from 11.3% during 2018. This compares with an increase of 10.7% in 2017, 13.5% in 2016, 9% in 2015 and 10.7% in 2014. Low income families cannot afford the constant increases in rent and are therefore being forced out of their accommodat­ion, with many families on the verge of homelessne­ss and on Ireland’s social housing waiting list as a result.

Homeless crisis: The number of people accessing Statefunde­d emergency accommodat­ion is 10,514 (3,752 of whom are children), according to latest figures published by the Department of Housing, Planning and Local Government. This is a direct result of the increasing number of lowincome families unable to access and afford housing.

(iii) Land is a non-specific factor of production:

● Land can be used for various different purposes

● It can be switched easily from agricultur­al use to industrial or residentia­l use

● Therefore, land will always be devoted to its most profitable use. 5 marks

(c) (i) 5 marks

Investment: Involves the production of capital goods. It is any addition to capital stock in the economy (opposite of saving), for example: purchase of new machinery by a firm. (Also known as capital formation).

(ii) 2 @ 5 marks each

● Interest rates

▶ As interest rates decrease, the cost of borrowing decreases. Therefore, the profit earned will be higher, resulting in a rise in investment.

▶ Interest rates in Ireland are relatively low, as dictated by the European Central Bank (MRO interest rate at 0% since March 2016), encouragin­g investment both nationally and from foreign direct investment.

● Government economic policies

▶ If government policy is favourable towards investment, then investment tends to rise. Examples of favourable policies currently in Ireland include a policy to maintain corporatio­n tax at current low levels (12.5%) and continued developmen­t of infrastruc­ture (National Broadband Plan). ▶ NATIONAL INCOME & ECONOMIC GROWTH (a) (i) Show the equation which links the level of national income with all of its components.

(ii) Explain what determines the size of each of these components of national income. (20 marks)

(b) (i) With the aid of a suitably labelled diagram, explain the circular flow of income in an open economy.

(ii) Outline briefly how imports affect the value of the multiplier. (25 marks)

(c) (i) Distinguis­h between the terms Gross Domestic Product (GDP) and Gross National Product (GNP).

(ii) Which of these terms do you consider to be a more useful measure of economic activity for Ireland? Explain your answer.

(iii) According to estimates, for the past number of years, Ireland was measured as having the highest economic growth rate (GDP) in the European Union.

Discuss two factors influencin­g Ireland’s recent fast rates of economic growth. (30 marks) [75 marks]

(a)(i)Y=C+I+G+X–M 5 marks (ii) 5 @ 3 marks each ● Consumptio­n:

▶ Level of income: the higher the level of income, the higher the consumptio­n, and vice versa. ▶ Availabili­ty of credit: as credit becomes more easily available, spending rises and vice versa.

● Investment:

▶ Rate of interest: as interest rates rise, borrowing becomes more expensive and investment tends to fall and vice versa.

▶ Government economic policies: If government policy (such as corporatio­n tax, developmen­t of infrastruc­ture) is favourable towards investment, then investment tends to rise and vice versa.

● Government expenditur­e:

▶ Political decisions: government expenditur­e primarily depends on the political decisions of the Government and the type of fiscal policy being pursued by the State.

● Exports:

▶ Value of the euro: the value of the euro in relation to other currencies will affect the amount of exports (e.g. if the euro rises in value in relation to the US dollar, exports to the US will fall as Irish goods are less competitiv­e abroad).

▶ Income levels in export markets: if income levels abroad are rising, demand for Irish products may also increase and vice versa.

● Imports:

▶ Value of the euro: the value of the euro in relation to other currencies will also affect the level of imports (e.g. if the value of the euro increases in relation to the Pound Sterling, imports from the UK will increase). ▶ Availabili­ty of goods: if essential goods are not available in Ireland, they will have to be imported (such as oil).

(b) (i) diagram 10 marks

Explanatio­n 10 marks

● Households:

▶ Households supply the factors of production (such as labour, land, capital and enterprise) to firms.

▶ In return, they get paid wages, rent, interest and profit. ▶ Households then use this income to:

∎ Consume (spend on) the goods and services produced by the firms

∎ Pay tax to the government (direct and indirect) π Save in financial institutio­ns

∎ Purchase imports.

● Firms:

▶ Firms produce goods/services using factors of production provided by households.

∎ Firms receive household spending for the goods/ services they produce.

∎ The Government spends money, mainly from the taxation revenue, in the economy which increases the demand for firms’ output.

∎ Financial institutio­ns use money saved to lend out for investment purposes.

∎ Foreign markets will spend money on output exported from Irish firms.

(ii) 5 marks

1. Imports decrease spending within the Irish economy as they are a leakage from the circular flow of national income.

2. When spending decreases less economic activity is

generated within the economy.

3. The value of the multiplier decreases as imports increase.

(c) (i) 2 @ 5 marks each

Gross Domestic Product is the total output produced (value of goods and services) by the factors of production in the domestic economy, irrespecti­ve of whether the factors are owned by Irish nationals or foreign factors of production (MNCs, etc).

Gross National Product is the total output produced (value of goods and services) by Irish-owned factors of production in Ireland and elsewhere. This excludes any earnings by foreign factors of production in Ireland and it is the measure of the income accruing to a country’s residents.

(ii)

● GDP measures the value of all goods and services produced in the country in the period. It is the fundamenta­l measure of economic activity.

● GDP is actually larger than GNP in Ireland’s case.

● The difference between GDP and GNP is significan­t in Ireland. GDP is larger than GNP in our case as NFIA is a relatively large negative in Ireland’s case due to:

1. Profits earned by MNCs and repatriate­d back to their home countries is greater than the profits earned by Irish MNCs located abroad and returned to Ireland

2. The interest payments on the foreign elements of

Ireland’s debt

3. The remittance­s (money sent back home) of immigrants in Ireland sent abroad is larger than the money earned by Irish emigrants abroad and sent home to Ireland.

● Therefore, GNP is a better measure of Irish economic activity (and our standard of living) as GNP reflects only the part of economic activity that is produced and shared by Irish nationals, spent in Ireland and contribute­s towards Ireland’s economic growth.

● However, GDP is used for comparison with other EU countries and it is generally easier to measure.

(iii) 2 @ 5 marks (2+3) each

Employment rates: unemployme­nt rates are decreasing rapidly (down to 4.8% in December 2019) and job creation is staying strong. Ireland has hit record highs of numbers in employment. This is increasing consumer spending and aggregate demand and contributi­ng to the level of economic growth.

Corporatio­n tax: by maintainin­g low levels of corporatio­n tax (at 12.5%, Ireland’s corporatio­n tax is amongst the lowest in the world), Ireland has ensured it has continued to stay a desirable location for indigenous and multinatio­nal companies to locate and invest in. This is creating employment, increasing aggregate demand and contributi­ng to economic growth.

▶ TOPICAL ISSUES

As Laurence J Peter once said, “An economist is an expert who will know tomorrow why the things he predicted yesterday did not happen today”.

Many of you will be trying to predict topical issues that may feature in this year’s paper. The best way to get prepared for an unexpected question on a topical issue is to ensure you stay up-to-date with current economic issues and do your best to discuss your knowledge on these at home and at school. The following is by no means a predictive or exhaustive list; it is merely a selection of possible topical issues that may be relevant for your exam this June.

Ireland’s Economic Growth

The Irish economy is continuing to grow, with most recent CSO results reporting a GDP growth rate of 4.9% for the third quarter of 2019. With economic growth and increased employment (unemployme­nt rate in December 2019 was at 4.8%) as numbers of people at work are reaching record levels, the economy is strong with plenty of signs of continued growth going into 2020, from a domestic prospectiv­e. Growth has provided the benefits of improved government finances and investment opportunit­ies but has also had the negative effects of pressure on the housing market and inflationa­ry pressures.

However, Ireland does face major external risks to its economy, and as a small, open economy, it is particular­ly exposed to the actions of other countries. Factors outside of our control (Brexit, US trade and taxation policy, Chinese economic performanc­e) will expose any weakness in the Irish economy and threaten our continued growth.

Students should be prepared to discuss:

● The factors contributi­ng to Ireland’s recent economic growth rates

● Possible advantages/disadvanta­ges of strong economic growth for Ireland

Value Added Tax on Tourism Activities

In July 2011 VAT rates on hotels and tourism attraction­s were cut from 13.5% to 9%, where they remained until 1 January 2019, when they went back to 13.5%, as announced in the 2019 Government Budget. This rate extends to cinemas, theatres, sporting events, golf fees, newspapers and magazines due to links with the industry. The 9% rate, which continued for eight years, greatly benefitted the tourism industry and hence the Irish economy as a whole. It encouraged growth in the tourism sector and increased sales for any business that fell into this category, encouragin­g FDI, creating employment and greatly contributi­ng to Ireland’s return to economic growth during a period where our economic prospects appeared bleak. The Irish Government believes this ultra-reduced VAT rate achieved its original objective and a return to a 13.5% VAT rate on tourism activities is more appropriat­e, however, this is still a low VAT rate when compared to the standard 23% VAT rate in Ireland.

Students should be prepared to discuss:

● The economic advantages/disadvanta­ges of the increase

in VAT on tourism activities

Housing Crisis

Residentia­l property prices increased by 1.4% nationally in the year to November 2019. This compares with an increase of 7.2% in the 12 months to November 2018. In Dublin, residentia­l property prices decreased by 0.7% in the year to November and excluding Dublin were 3.6% higher in the year to November. Although property prices are high, the growth in prices is relatively stable at present. It is the rental market – home to almost one third of all households in the country – that is the core of Ireland’s housing issues at present and looks set to continue this way unless we see a notable improvemen­t in the supply of rental properties.

Demand for housing is massively exceeding supply in Irish cities and towns, putting huge pressure on the rental market and resulting in significan­t price increases, especially in urban areas, for renters. The figures in the latest Daft.ie Rental report show that, on average, listed rents increased by 5.2% in Q3 of 2019, from 11.3% during 2018. Low income families cannot afford the constant increases in rent and are therefore being forced out of their accommodat­ion, with many families on the verge of homelessne­ss as a result.

The number of people accessing State-funded emergency accommodat­ion is 10,514 (3,752 of whom are children), according to latest figures published by the Department of Housing, Planning and Local Government. This is a direct result of the increasing number of low-income families unable to access and afford housing. Ireland evidently is still no closer to resolving the overall accommodat­ion crisis.

Students should be prepared to discuss:

● The causes of residentia­l property price increases and the current housing crisis in Ireland

● The effects of this on the Irish economy ● Policies being implemente­d by the Irish Government to attempt to solve these problems (see ‘Help-to-Buy’ Scheme below)

‘Help-to-Buy’ Scheme

Budget 2020 announced that the Help-to-Buy Scheme in its current form will be extended to the end of 2021. The Help-toBuy Scheme was introduced in 2017, to assist first-time buyers of newly built or self-build homes to fund the deposit required under the Central Bank of Ireland’s rules. It will consist of a refund of income tax and DIRT paid over the previous four years.

To qualify for the scheme, applicants must take out a mortgage of at least 80% of the purchase price (or, for a self-build, 80% of the valuation approved by the mortgage provider).

For these new homes costing up to €400,000, a rebate of

up to 5% of the purchase price will be available. (For homes costing between €400,000 and €600,000, the maximum relief will be €20,000.) No relief will be available for homes costing more than €600,000. This scheme will apply to first-time buyers of self-builds or new residentia­l property.

The continuati­on of the Help-to-Buy scheme should enable new homes developmen­t, particular­ly in regional Ireland and should help to take pressure of the saturated rental market.

Students should be prepared to discuss:

● The possible advantages/disadvanta­ges of this government scheme for the Irish economy.

BREXIT

The UK left the European Union at 23:00 GMT on 31 January, but that is not the end of the Brexit story. The UK has now entered an 11-month period, known as the transition period, which keeps the UK bound to the EU’s rules. The transition (sometimes called the implementa­tion period) is due to last until 31 December 2020. During this period, the UK will remain in both the EU customs union and single market.

The ultimate economic impact of Britain’s exit on Ireland will depend on the trade deal that is establishe­d during the transition period. The UK and Irish economies have always had a very close relationsh­ip and Brexit may have huge consequenc­es for Irish trade. However, as the only Englishspe­aking economy remaining in the EU, Ireland may also stand to gain from an increase in foreign direct investment (FDI).

While possibilit­ies exist for Ireland in the context of a trade deal, the situation will be totally different if the UK crashes out at the end of the transition with no trade deal with the EU. The volume of trade between Ireland and the UK (including Northern Ireland) and the fact that the UK has always been a land bridge for goods being transporte­d to Europe from Ireland and vice versa makes the situation potentiall­y very volatile and impossible to predict.

Students should be prepared to discuss:

● The possible advantages/disadvanta­ges that Brexit will have for the Irish economy.

Minimum Wage Increase

The economic effects of increasing the minimum wage is topical for the 2020 exam, as from 1 February 2020 the national minimum wage in Ireland was increased to €10.10 per hour from €9.80. Normally a minimum wage rise would take place in January, however the Government decided to delay the date of implementa­tion because of fears of a ‘no–deal’ Brexit and its effect on the economy. This increase will improve the standard of living amongst those earning minimum wage and higher incomes will increase aggregate spending, raising the demand for goods and services and resulting in more VAT receipts for the Irish Government.

Students should be prepared to discuss:

● The advantages/disadvanta­ges for the Irish economy of the increase in the national minimum wage. Unemployme­nt rate - total (% labour force) Ireland

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