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Home > Wednesday Wisdoms: Newsletter > Worst advice I've heard for A level Economics students 🤦

Welcome to the 11th 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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Worst advice I've heard for A level Economics students 🤦

Hi Genies! 🌟
A comment on our recent TikTok— "Just revise one week before your A level Economics exams and you'll be fine"—got me thinking.
This is terrible advice!
But better yet.....
As we embark on this new academic year, it's crucial to debunk this myth.
Cramming might work for a few, but for most of us, consistent effort beats last-minute stress.

Evidence on Consistency:

Spacing Effect

Research: Ebbinghaus (1885) showcased the “spacing effect” or distributed practice, where information is better retained when studied in smaller, spread-out intervals.

Application: Regular, daily revisits of economics work, as opposed to cramming, ensure more durable memory retention.

Cognitive Load Theory:

Research: Sweller’s (1988) Cognitive Load Theory demonstrates that our working memory has limited capacity.

Application: Consistent, moderate study sessions for Economics reduce cognitive overload, facilitating deeper understanding and recall of economic theories, models and application.

Habit Formation:

Research: Lally and colleagues (2009) indicate it takes, on average, 66 days to form a habit.

Application: Establishing a daily study routine embeds economics revision into your habits, effortlessly integrating learning into your daily life.

Implementing Consistency and making it easy: How?

Start Small and Manageable
Application: Begin with just 10-15 minutes of Economics revision daily. This might be a quick multiple-choice question or analysing an extract. The key is making it so easy that you can’t say no.
Rationale: Clear emphasises starting with an action so tiny it's almost trivial. This tiny habit gradually becomes a normal part of your routine, eventually growing in duration and complexity.

Make It Attractive
Application: Combine study sessions with something you enjoy. Perhaps listen to your favourite playlist only when studying Economics or reward yourself with a small treat post-study.
Rationale: Clear talks about habit stacking (+ making it attractive) – linking a new habit with a liked activity to make the new habit more appealing.

Leverage Immediate Rewards
Application: After completing a revision session, immediately reward yourself. It could be a short break, a snack, or a quick video game session.
Rationale: James Clear (author of Atomic Habits) suggests immediate rewards reinforce the habit loop quickly. The quicker the reward after a behaviour, the more likely it is to become a habit.

Optimise Your Environment
Application: Designate a specific spot for Economics revision – free from distractions and equipped with all needed resources (EDGENIE!!!)
Rationale: The environment massively influences habit formation. Making good habits convenient and bad habits inconvenient optimises habit development.

Track and Visualise Progress
Application: Create a visual tracker, like a calendar or a chart, where you mark each day you engage in revision, forming a chain of success.
Rationale: Clear champions visual measures of progress as they provide clear evidence of your hard work and consistency, boosting motivation to maintain the streak.

Final Thoughts 💭

The journey to mastering A-Level Economics doesn’t require monumental shifts, but consistent, atomic-level habits that pave the way for lasting success. Let's embark on this journey of little steps together!

UK Income Tax: How Fiscal Drag Leads to People Falling Into Higher Rates

Summary:

  • Conservative chancellors, from Rishi Sunak to Jeremy Hunt, have frozen income tax thresholds for four consecutive years.
  • This policy results in "fiscal drag," where individuals are pushed into higher tax brackets due to thresholds not aligning with the cost of living.
  • The OBR estimated the government would raise an additional £26bn by maintaining the personal allowance at £12,570 and the higher rate threshold at £50,270, rather than adjusting them with inflation.

  • In 2012-13:
    25.7 million people (84% of all income tax payers) were in the basic 20% tax band.

  • 2013-14:
    The additional tax rate for incomes over £150,000 was reduced from 50% to 45%.

  • 2016-17:
    83% of the population was in the basic tax band.
    14.1% of taxpayers paid a higher rate of 40% on incomes above £43,001.

  • 2019-20:
    The salary for the higher 40% tax rate was set at incomes over £50,000, marking a significant rise in the fiscal drag.

  • 2020-21:
    Due to unchanged thresholds from 2019-20, more individuals moved into higher tax brackets. The proportion in the higher tax bracket increased from 12.2% to 12.6% within a year.

  • 2023-24:
    HMRC projections show that due to frozen thresholds from 2019-20, taxpayers in the higher tax rate increased from 12.2% to 15.6%—a 28% rise over four years.

  • Data Source: HMRC's freedom of information responses and the Survey of Personal Incomes.

  • Working-age population has increased: From 65 (males) and 61.5 (females) in 2012-2013 to 66 for both genders in 2023/2024. This, combined with population growth, increased the total number of income tax payers.

A Level Economics Questions:

Q: Define the term "fiscal drag" and explain how it impacts taxpayers.​A: Fiscal drag refers to the situation where tax thresholds do not keep pace with inflation or the rising cost of living. As a result, even if individuals' nominal incomes increase (due to inflation), they might be pushed into a higher tax bracket without a real increase in their earning power. This means that more people end up paying higher rates of tax without the government actually increasing the tax rate.

Q: Discuss the potential economic implications for a government that maintains income tax thresholds, thereby not adjusting them with inflation.
A: When the government maintains income tax thresholds and doesn't adjust them in line with inflation, it results in the following economic implications:

Increased Government Revenue:
As more people are pulled into higher tax brackets, the government collects more tax revenue.
Reduced Disposable Income: Individuals paying higher tax rates will have a reduced disposable income, which may decrease their consumption and savings.
Potential Inequity: It can lead to regressive effects where those with lower real income increments bear a relatively higher tax burden.
Work Incentives: Some individuals might feel disincentivized to earn more if they know they will be pushed into a higher tax bracket.
Economic Growth: The additional tax revenue for the government could be used for public investment, potentially driving economic growth. 

Q: Evaluate the potential benefits and drawbacks for a government implementing a policy that freezes income tax thresholds.
A: Benefits:

Increased Revenue: As mentioned in the article, by freezing the income tax thresholds, the government can generate substantial additional revenue, which can be used for public expenditure.
Simplicity: Maintaining existing thresholds can simplify the taxation process as constant changes to tax bands and rates can complicate tax administration.
Budgetary Predictability: Stable tax thresholds can lead to more predictable revenue streams.

Drawbacks:

Reduced Fairness: It can make the tax system less progressive, with lower and middle-income individuals potentially paying a higher proportion of their income in tax compared to the very wealthy.
Reduced Consumer Spending: With more people paying higher taxes, disposable income might reduce, leading to decreased consumer spending, which can slow economic growth.
Work Incentives: Individuals might be disincentivized from seeking higher wages or additional work if it means they'll be placed in a higher tax bracket.
Political Unpopularity: Such a policy might be unpopular among voters, especially if they feel they are being taxed unfairly.

Q:  Analyse how the freezing of income tax thresholds can impact the overall income inequality within an economy.
A: Freezing income tax thresholds can exacerbate income inequality. When thresholds aren't adjusted for inflation, a larger segment of the population may move into higher tax brackets. This means middle-income earners, who get nominal raises due to inflation but not necessarily real increases in purchasing power, end up paying a larger proportion of their income in taxes compared to very high-income earners. Over time, this can widen the disposable income gap between middle-income and high-income households, leading to increased income inequality. Moreover, since the higher tax rate affects consumption patterns more acutely for middle-income households than for high-income households, the relative standards of living could diverge further, deepening inequality.

Possible A Level Economics 25 Marker Question

Evaluate the impacts of reduced disposable incomes (25 marks)​

Infographic of the Week

World's Top Oil Producers in 2022

In 2022, the U.S. led global oil production with nearly 18 million B/D, constituting 18.9% of the world's total. Following closely were Saudi Arabia, Russia, Canada, and Iraq. Together, the top five nations provided over half the world's oil supply. Overall, global oil output increased by 4.2% from 2021 to 2022. Regionally, the Middle East produced a third of the global total, while Europe's share declined significantly. Amid these shifts, efforts to transition to renewable energy sources continue, pushing major oil nations to diversify their economies.

Chart of the Week

Economic Benefits of Closing Gender Gaps

Closing the gender gap in the workforce can provide a significant boost to global economies, especially during the weakest medium-term growth projections in over 30 years. Presently, only 47% of women are active in the labour market, compared to 72% of men. This disparity, caused by discriminatory laws, unequal service access, and biased attitudes, leads to substantial growth potential loss. Research indicates that emerging economies could increase GDP by about 8% in the coming years if female labour force participation rises by just 5.9 percentage points. Although there are many ways to stimulate growth, combining them with gender gap reduction measures can amplify returns significantly. Current policies, however, are insufficient, with the pandemic further exacerbating disparities. To genuinely advance gender equality, countries need to prioritize dismantling barriers hindering women's market participation and consider the impacts of macroeconomic policies on women.

Macroeconomic Data


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Chief Learning Officer at Edgenie