Essay plans macroeconomic (25 markers)

Question 1

Evaluate the use of fiscal policy as a way to achieve economic growth (3 policies )

Answer 1

1. increasing govt spending –> infrastucture like roads, railway hospitals and education –> increases AS and AD and leads to higher GDP and growth
2. tax cuts –> increases disposable income for HH and lowers corp tax for firms –> leads to higher consumption and more investment (multiplier diagram) –> multiplier effect + AD rises and economic growth
3. Subsidies for certain industries –> more innovation and research –> technological advancement of AI and green energy –> increases social welfare, living standards and improves the economy

Question 2

Evaluate the use of fiscal policy as a way to achieve economic growth (3 evaluation points)

Answer 2

1. increases national debt
2. creates inflation
3. creates moral hazard

Question 3

Evaluate the use of monetary policy as a way to achieve economic growth (2 policies )

Answer 3

1. quantative easing increases the money supply –> central banks inject money through buying bonds and gilts and raise liquidity level –> boosts lending and investment which increases AD and therefore economic growth
2. lowering the base rate of interest –> cost of borrowing reduces which makes savings wrothless and benefits borrowers–>raises investment and entrepreneurship

Question 4

Evaluate the use of monetary policy as a way to achieve economic growth (2 evaluation points )

Answer 4

1. Asset bubbles are created and market rigging
2. demand pull inflation

Question 5

Evaluate the use of supply side policy as a way to achieve economic growth (3 policies )

Answer 5

1. Deregulation of laws for firms–> lowers law of setting capital ratio reserve in banks –> increases profits, more corp tax which means tax revenue rises and govt can use it to fund impacts of negative externalities
2. privatisation of public services —> water company, NHS to help more efficient allocation of resources –> encourages competition among services and better the quality which leads to a better economy
3. education and training improvement through higher funding –> Universities becoming free, new apprenticeship schemes –> reduces skills gap, occupational immobility and structural unemployment which leads to a better economy

Question 6

Evaluate the use of supply side policy as a way to achieve economic growth (3 evaluation points)

Answer 6

1. run on banks (northern rock)
2. profit maximising incentive leads to underprovision of merit goods
3. time lag

Question 7

evaluate the use of fiscal policy as a way to achieve low and stable inflation (3 policies )

Answer 7

1. decreasing govt spending in industries –> lowers consumption in the economy as demand is lowered due to less govt help in current –> reduces national debt –>reduces demand pull inflation
2. raising progressive taxes –> increases direct taxes like income tax (LRAS and AD diagram with AD shifting down) –>
   withdrawal of circular flow of income, perhaps negative multiplier and decreases chance of inflation rising
3. decreasing transfer payments –> JSA lowering, Child benefits, disability benefits –> leads to less consumption and less inflation

Question 8

evaluate the use of fiscal policy as a way to achieve low and stable inflation (3 evaluation points )

Answer 8

1. trade off between economic growth and inflation
2. depends on MPC ( if MPC is high, tax rising will be effective)
3. inequality rises and possibly absolute poverty as well

Question 9

evaluate the use of monetary policy as a way to achieve low and stable inflation (2 policies )

Answer 9

1. reducing the money supply through banks handing out loans more easily–> reduces the availability of loans and lending in the long term due to the liquidity requirement –> this reduces the spending and consumption in the economy and therefore less chance of inflation rising
2. contractionary MP through raising interest rates which attracts hot money –> this appreciates the currency ( currency appreciation diagram shifting as in) –> imports become cheaper meaning less cost push inflation

Question 10

1. evaluate the use of monetary policy as a way to achieve low and stable inflation (2 evaluation points )

Answer 10

1. short term time lag, long term less economic growth
2. export- led growth drops, GDP lowers, living standards lower

Question 11

evaluate the use of supply side policy as a way to achieve low and stable inflation (3 policies)

Answer 11

1.reduce business tax and regulations –> lowering corp tax and legal requirements –> creates higher innovation to reduce average costs and economies of scale –> reduces cost push inflation

2. increasing infrastructure –> increase railways and transport like more bus only roads –> improves efficiency and good allocation of resources–> reduces transport costs like ubers and cars, meaning lower demand pull inflation
3. improving education and training –> through free apprenticeship programs or training programs to improve skills and flexibility in labour markets –> even distribution in education, meaning higher supply of labour and more overall productivity –> reduces demand pull inflation through wage rises and price rises.

Question 12

evaluate the use of supply side policy as a way to achieve low and stable inflation (3 evaluation points )

Answer 12

1. may increase consumption, AD increases meaning inflation increases
2. cost of funding for new infrastructure could lead to short term cost push inflation

3.time lag, structural unemployment increases in some markets due to no pay advantages

Question 13

evaluate the use of fiscal policy as a way to achieve near full employment/ reduce unemployment (3 policies )

Answer 13

1.contractionary fiscal policy through reducing transfer payments –> JSA reduction , unemployment benefits causes people to struggle –> incentives them to look for work and employment which leads to less unemployment

Question 14

evaluate the use of fiscal policy as a way to achieve near full employment/ reduce unemployment (3 evaluation points )

Answer 14

1. if there is excess supply , poverty may rise as well as inequality
2. saving income means a low multiplier effect on job creation
3. time lag , high future debt which restricts future spending on in need sectors like healthcare

Question 15

evaluate the use of monetary policy as a way to achieve near full employment/ reduce unemployment (2 policies )

Answer 15

1. expansionary policy through lowering interest rates –> businesses will increase investments and growth –> more people needed to manage different departments –> unemployment falls
2. increasing QE through buying gilts and increase the money supply –> consumption rises meaning businesses earn more –> this allows them to grow through increasing workforce. Employment rises.

Question 16

evaluate the use of monetary policy as a way to achieve near full employment/ reduce unemployment (2 evaluation points )

Answer 16

1. demand pull inflation and very high price rise
2. high wealth inequality since it raises assets that people already possess thus making them richer

Question 17

evaluate the use of supply side policy as a way to achieve near full employment/ reduce unemployment (3 policies )

Answer 17

1. education and training allocation schemes allow qualification gaps to close –> through apprenticeships T levels , vocational courses –> higher qualifications reduce shortages in workplace. Employment rises and structural employment
2. deregulation can increase business creation –> businesses grow and obtain higher profit –> hire more people to help manage growth, employment rises
3. improving infrastructure –> more railways connecting cities –>less geographical immobility and allows more job application easier access to workplaces incentives people to stay/ join workforce

Question 18

evaluate the use of supply side policy as a way to achieve near full employment/ reduce unemployment (3 evaluation points )

Answer 18

1. time lag and costly for for govt
2. poor working environment, job quality decreases
3. risk of waste/ delay due to time lag of building the infrastructure

Question 19

evaluate the use of fiscal policy as a way to achieve a balanced balance of payment (3 policies )

Answer 19

1. contractionary fiscal policy through raising taxes –> less importation due to lower demand –> more income from households is given to govt so less AD meaning less trade (X-M)
2. Expansionary through increasing capital expenditure funding –> building better ports or railways for trade –> goods become more competitive due to lower delivery times. Export led growth means less trade deficit

Question 20

evaluate the use of fiscal policy as a way to achieve a balanced balance of payment (3 evaluation points )

Answer 20

1. depends on the elasticity of the goods bought
2. industries may not end up being competition and govt wastes money + increasing national debt
3. time lag

Question 21

evaluate the use of monetary policy as a way to achieve a balanced balance of payment (2 policies )

Answer 21

1.expansionary mp through lowering base rate of interest –> consumers and firms increase borrowing and spending, capital outflows lead to weaker currency. imports become expensive, exports become cheaper so trade balance deficit improves.

2. increasing money supply through QE –> domestic industries increase borrowing to innovate and improve –> become competitive internationally and lead to high exports, trade balance improves

Question 22

evaluate the use of monetary policy as a way to achieve a balanced balance of payment (2 evaluation points )

Answer 22

1. J curve effect in short term it worsens
2. risk of high inflation (LRAS and AD diagram)

Question 23

evaluate the use of supply side policy as a way to achieve a balanced balance of payment (3 policies )

Answer 23

1. deregulation eases business conditions lead to more investment –> different legal standard dropping allow higher investment in export oriented markets –> attracts FDI improves capital account and increases output - higher export leads better trade balance deficit
2. govt subsidies allow govt grants to certain industries to increase R&D and innovation –> pharmaceutical industry, electronics / energy –> creates high value exports, exports become very competitive meaning higher X>M improves deficit through current account
3. Improving labour production through education and training –> apprenticeship allows training + consumption like mortgages –> more skilled workers leads to higher and better quality output meaning more internationally competitive products to sell

Question 24

evaluate the use of supply side policy as a way to achieve a balanced balance of payment (3 evaluation points)

Answer 24

1. exploitation of workers, higher discrimination in workforce and working conditions
2. opportunity cost in other areas and risk of failure
3. time lag

Question 25

evaluate the use of fiscal policy to achieve a sustainable environment (3 policies )

Answer 25

1. introducing harsher labour taxes on polluters --> cars, taxes, planes (externality diagram ) --> increases private cost, helps internalise externalities 2. increasing spending on green projects --> renewable energy , electric vehicles --> reduces welfare loss, reduces negative externalities and helps with unemployment 3. increase in govt spending in infrastructure --> public transport , clean water management --> promotes healthy lifestyles and reduces emission

Question 26

evaluate the use of fiscal policy to achieve a sustainable environment (3 evaluation points )

Answer 26

1.may be regressive as it impacts low income homes more 2.opportunity cost in budget and govt failure 3. time lag and admin costs are very high

Question 27

evaluate the use of monetary policy to achieve a sustainable environment (2 policies )

Answer 27

1. QE to increase bank loans in liquidity --> granting loans to green energy focused companies like solar panels or wind farms --> higher rate of innovation, better and more positive externalities 2. raising interest rates very high --> less goods like cars , travelling, imports from abroad bought --> less consumption due to high saving + hot money less CO2 emission

Question 28

evaluate the use of monetary policy to achieve a sustainable environment (3 evaluation points )

Answer 28

1. high inflation 2. low economic growth, impacts borrowers

Question 29

evaluate the use of supply side policy to achieve a sustainable environment (3 policies )

Answer 29

1. deregulation regarding firms lowering regulations to increase output --> earning through having faster processes of approval for wind farms or solar panels --> higher use of renewable energy and less fossil fuel use 2. implementing harsher restrictions increasing payment of using certain areas/ roads --> harsher penalties or fines for ULEZ zones ( externalities diagram ) --> higher use of renewable energy and less fossil fuel use 3. infrastructure funding for transport or subsidising certain markets --> better public transport like bigger busses, trains and bikes --> encourages better transport use and less negative externalities

Question 30

evaluate the use of supply side policy to achieve a sustainable environment (3 evaluation points )

Answer 30

1. higher wildlife destruction 2. high admin cost and may be hard to manage 3. time lag and high costs

Question 31

evaluate the use of fiscal policy to achieve reduced inequality (3 policies )

Answer 31

contractionary through progressive tax --> increasing the income tax bracket for the wealthy --> it helps evenly distribute wealth 2. increasing transfer expenditures --> like unemployment benefits, pensions, child support --> help those in poorer conditions maintain living standards 3. increasing subsidies in necessities --> fuel, food, and transport subsidies for certain people meeting requirements-->helps relieve the cost of living crisis for the poor

Question 32

evaluate the use of fiscal policy to achieve reduced inequality (3 evaluation points )

Answer 32

1. may discourage labour and productivity 2. national debt does worsen and govt budget deficit increases 3. may reduce long term structural employment due to low incentive

Question 33

evaluate the use of monetary policy to achieve reduced inequality (2 policies )

Answer 33

1. lowering interest rates to encourage business growth --> firms grow and there is job creation in different departments of large companies like social media --> less poverty and income inequality due to lower unemployment 2. increase the money supply through QE --> govt lowers the cost of borrowing which can be spent on low income homes --> HH have help from govt directly and help lower inequality

Question 34

evaluate the use of monetary policy to achieve reduced inequality (3 evaluation points )

Answer 34

1. those who save their own income lose a lot of their saving 2. inflation increases price of stocks, bonds, property that's owned by the wealthy

Question 35

evaluate the use of supply side policy to achieve reduced inequality (3 policies )

Answer 35

proving education to lower class who cant afford it --> T level , apprenticeships , training, universities being free --> higher qualifications allows lower income individ uals to access higher incomes to reduce inequality

Question 36

evaluate the use of supply side policy to achieve reduced inequality (3 evaluation points )

Question 37

evaluate the use of fiscal policy to achieve a decreasing national debt (3 policies)

Question 38

evaluate the use of fiscal policy to achieve a decreasing national debt (3 evaluation points )

Question 39

evaluate the use of monetary policy to achieve a decreasing national debt (3 policies)

Question 40

evaluate the use of monetary policy to achieve a decreasing national debt (3 evaluation points )

Question 41

evaluate the use of supply side policy to achieve a decreasing national debt (3 policies)

Question 42

evaluate the use of supply side policy to achieve a decreasing national debt (3 evaluation points )