Cambridge International as and a level Economics Ebook

Figure 1 
The road to economic explanation
3
Introduction 

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The economist’s toolkit
Th
e economist has a varied toolkit, a term that can be 
used to describe the skills and techniques available for 
the analysis of economic problems. Two skills that are 
of particular relevance when studying the Cambridge 
syllabus are:
■
the ability to interpret and use data
■
the ability to write in a clear and eff ective way.
Note:
you may fi nd it helpful to refer back to this section 
of the book intermittently when you are undertaking some 
of the self-assessment tasks. You should also refer back to 
this section before you take any examinations.
Data skills
Five main skills are required for the Cambridge syllabus. 
Th
ese skills are:
1
the ability to pick out the main features in a data set
2
how to calculate a simple average and know what it means
3
a knowledge of trends and the rate of change in a set of 
time-series data
4
a working knowledge of index numbers
5
how to interpret economic information produced in 
visual form.
In addition, you will fi nd it useful to know how and why 
economists make forecasts.
SELF-ASSESSMENT TASK 
2
Recovery under threat
January 2014 saw a significant fall in share prices on 
stock markets throughout the world. The fall was 
particularly significant in the United States of America. 
The downturn in global share prices combined with 
a decline in China’s economic growth rate led some 
economists to worry that the recovery from the 2007–
2008 recession was under threat.
The US economy had been driving the global recovery 
but in January 2014 there were some economists who 
thought that the country’s economic performance in 
2014 would not be as strong as its 2013 performance. 
There was some evidence to support this view. 
Manufacturing and car sales declined at the end of 2013 
and start of 2014. Economic activity was disrupted by 
bad weather at this time with very low temperatures and 
heavy snowfall.
There were some economists, however, who were more 
optimistic about future US economic performance. 
Although consumer confidence had been low in 2013 it 
was expected to rise in 2014, which it was thought would 
contribute to a higher economic growth rate in 2014 than 
in the previous year.
In contrast, there was widespread agreement that 
China’s 2014 economic growth rate would be lower than 
its 2013 rate. How much China’s output increases has 
a significant impact on a number of other economies, 
including emerging economies such as Brazil, India 
and Turkey. In 2013 the Turkish central bank more than 
doubled the country’s interest rates. The European 
Central Bank and the Central Bank of Japan were, 
however, seeking to introduce expansionary monetary 
policy measures, in part to increase the confidence of 
households and firms in the future economic prospects 
of their economies.
A rise in optimism about the future could itself contribute 
to a better economic performance, with higher consumer 
expenditure and investment increasing output which, in 
turn, would increase incomes.
Read the feature below and answer the questions that follow.