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Welcome to the 32nd edition of Wednesday Wisdoms by EdGenie!

Every Wednesday I send out actionable tips, tricks and real-world application insights from my 13-year experience coaching students to achieve As and A* in their Economics and Business A Levels.

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Stop including your diagrams like this

Hey Genies,

Mastering the art of seamlessly integrating diagrams into your essays can elevate your answers from a B to an A*.

Let's demystify how to effectively include diagrams in your economics answers, specifically focusing on the impact of an increase in Corporation Tax on firms. 📊

Common Pitfalls to Avoid 🚫

Imagine you're tasked with discussing the effects of a hike in Corporation Tax.
A common mistake is to separately discuss the theory and then, almost as an afterthought, include a diagram of the AD/AS model showing a leftward shift in the SRAS (due to higher production costs) and a downward shift in AD (reflecting reduced investment).

Something like this below:

This can be seen in the leftward shift of the SRAS curve from SRAS1 to SRAS2, reflecting higher prices from PL1 to PL2 and initially reducing output from Y3 to Y2. Simultaneously, there is a leftward shift of the AD curve from AD1 to AD2, illustrating a further decrease in output from Y2 to Y3.

Why this doesn't work:

  • Disconnection: The diagram feels tacked on, disconnected from the narrative of your answer.
  • Missed Opportunity: Fails to use the diagram to visually reinforce your argument.
  • Lack of Clarity: Readers have to piece together how the diagram relates to your discussion.

The Effective Approach

Now, let's transform that approach into something more compelling.
Incorporate the diagram into the very fabric of your explanation about the impact of an increase in Corporation Tax on firms.

A rise in Corporation Tax increases their tax liabilities on profits earned. Initially, an increase in Corporation Tax diminishes a firm's net profits, as a larger proportion of their earnings is redirected towards tax payments. This elevation in operational costs squeezes profit margins, making it more challenging for firms to allocate funds for expansion or innovation . This increase in tax they have to pay, may result in passing on those extra costs onto consumers in the form of higher prices across industries, causing the Short-Run Aggregate Supply (SRAS) curve to shift leftward from SRAS1 to SRAS2 causing a rise in the price level from PL1 to PL2 originally reducing output from Y3 to Y2.
Moreover, the prospect of reduced profitability dampens firms' incentives to invest due to lower disposable profits, thus lower investment levels shifting AD to the left from AD1 to AD2, meaning lower levels of investment into research and new product development, resulting in lower dynamic efficiency, which signifies a contraction in a firm's future growth potential, hence a negative accelerator effect and can have a ripple effect on economic demand resulting in real gdp to fall from Y2 to Y3 eventually.

Incorporating diagrams into your answers should not be an afterthought but an integral part of your economic analysis.

When done effectively, diagrams can powerfully illustrate complex economic relationships, making your arguments more persuasive and your essays more impactful.
Elevate your economic essays with thoughtfully integrated diagrams, and let your economic acumen shine on paper. You've got this!



UK’s weak economy is taking a toll on its labour market


📉 Mild Recession Impact: Despite being historically mild, Britain's recession affects the labour market, with unemployment slightly up but still below 4%, a small drop in employment numbers, and a decrease in job vacancies which remains above pre-pandemic levels.

📊 Inflation and Wages: As the annual inflation rate declines, wage growth also moderates, allowing a temporary improvement in workers' living standards due to wages rising faster than prices.

🏢 Labour Market Resilience: The labour market remains tight with no significant job losses and ongoing worker shortages in various sectors, despite economic stagnation for nearly two years.

🛠️ Employment Strategies: Employers retain staff amidst recession fears, leading to slower wage reductions and delaying potential Bank of England interest rate cuts.

💷 Wage Growth Trends: Private sector regular pay increased by 6.1% in the three months to January 2024 year-on-year, indicating a cautious outlook from the Bank of England.

📉 Inflation and Earnings Outlook: With inflation expected to drop, further easing in earnings growth is anticipated, though structural labour market issues persist according to recent statistics.

📈 Employment Rate Concerns: The UK’s employment rate for those aged 16 to 64 is lower than pre-pandemic levels, highlighting an increase in individuals not participating in the labour force, particularly among young and older people and those with long-term health conditions.

A Level Economics Questions:

Q: Explain how a mild recession can impact the labour market in terms of employment and unemployment rates.
A: A mild recession, like the one Britain is currently experiencing, can lead to a slight increase in unemployment rates as businesses may cut back on hiring due to reduced demand for goods and services. However, the unemployment rate remains relatively low (below 4% in this case) indicating that the labour market is resilient. Employment numbers might fall slightly, and job vacancies decrease, yet the total number of job openings remains above pre-pandemic levels, suggesting a mild impact on the labour market.

Q: Discuss the relationship between inflation, wage growth, and living standards during the current economic situation in Britain.
A: As the annual inflation rate falls, wage growth also moderates. However, for the time being, workers’ living standards are improving because wages are rising more rapidly than prices. This situation is temporary and depends on the balance between wage increases and inflation rates. If wages continue to rise faster than inflation, it can lead to an improvement in living standards.

Q: Analyse the significance of the private sector regular pay increase as reported by the Office for National Statistics.
A: The reported 6.1% increase in private sector regular pay in the three months ending January 2024, compared to the same period a year earlier, indicates a decrease from the previous summer’s peak of 8.2% but is slightly higher than what the Bank of England had forecasted. This suggests that while wage growth is slowing, it remains robust, reflecting a tight labour market where employers are willing to increase wages to attract or retain talent, despite economic uncertainties.

Q: Evaluate the potential impact of the expected fall in inflation on the labour market and earnings growth.
A: With inflation expected to fall from 4% to about 2% in the coming months, earnings growth is likely to moderate further. This could potentially ease the pressure on employers to raise wages at a high rate to keep up with inflation, thereby slowing wage growth. However, this moderation in earnings growth, alongside falling inflation, could help maintain or even improve living standards if wage increases continue to outpace price rises, albeit at a slower rate.

Possible A Level Economics 25 Marker Question

Discuss the long-term effects of the current economic conditions on the UK’s employment rate.

Infographic of the Week

A Global Divide: Economic Confidence Varies Widely from Asia to Europe

Survey data collected between October and November 2023 suggests a split view on the strength of the global economy in 2024, with an average of 50% of respondents across 33 countries expressing confidence, up by 4 percentage points from the previous year. India leads with 85% of respondents feeling positive, closely followed by Indonesia and China at 82%. Asia dominates the top of the optimism rankings, whereas Japan and South Korea show notable skepticism. Brazil reflects the highest optimism in South America, despite a 13-point drop, and Europe remains largely pessimistic, with Poland as the exception. Notably, major European economies like Germany and France are among the least confident, suggesting regional variations in economic expectations for 2024.

Chart of the Week

Global Weigh-In: Navigating the Obesity Landscape

In 2021, obesity rates were worryingly high across OECD countries, with the US leading at 33.5% and Korea presenting the lowest figure at 4.3%. Over half of the adults in surveyed countries were overweight or obese, with nearly one in five falling into the obese category. The prevalence of obesity was notably high in the US, with a third of respondents classifying themselves as such, followed by over a quarter in Chile and the UK. In contrast, Korea reported a significantly lower percentage. Men were more prone to obesity than women, with a notable 19-20 percentage point gap in countries like Germany, Luxembourg, and the Czech Republic. Misconceptions about obesity prevail, with the condition being more complex than just lifestyle choices, including factors such as genetics and environmental influences. These statistics are pertinent as the world marks World Obesity Day on the 4th of March, drawing attention to a global health challenge that goes beyond individual habits and speaks to broader societal issues.

Macroeconomic Data

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Emre Aksahin
Chief Learning Officer at Edgenie