Potential macroeconomic essay questions Essay Plans Potential macroeconomic essay questions

Theme 4 – A Global Perspective

Essay 1 - Evaluate the likely impact on consumers and the standard of living in an economy when a tariff is imposed on imports to a country as a protectionist policy. Refer to a developed economy of your choice in your answer. Define – tariff Diagram – supply and demand – impact of a tariff with explanation Points to develop Reduced consumption from consumers as price rises – less demand for imports UK firms supplying more to domestic market – increase in profit and can charge higher price UK consumers lose out from paying higher price Additional employment benefit to all UK firms Evaluative Depends on price elasticity Cost of protecting inefficient domestic producers Direct benefit to those protected by tariff – less income for consumers to spend elsewhere with higher price Some consumers may be unaffected if they do not purchase affected goods OVERALL CONCLUSION

Define – fiscal policy, fiscal deficit Essay 2 - Evaluate the effectiveness of fiscal policy to achieve the reduction of a fiscal deficit at a time of recession. Refer to an economy of your choice in your answer. Define – fiscal policy, fiscal deficit Diagram – Keynesian and classical LRAS Points to develop According to Keyensian – what would active (expansionary fiscal policy work / not work According to classical – why would austerity work/ not work Evaluative Tax reduction might be less effective than increased gov. spending – depends if it is saved or spend by consumers (MPS/MPC) Additional consumption as a result of tax reduction may be spent on imports AD increase above LRAS increase (classical) might result in inflation OVERALL CONCLUSION

Define – balance of payments, deficit Diagram – N/A Points to develop Essay 3 - Evaluate measures that a government which operates a free floating exchange rate may take, in order to reduce the country’s deficit on its current account of the balance of payments. Refer to a developed economy of your choice in your answer. Define – balance of payments, deficit Diagram – N/A Points to develop Selling assets to foreign investors Protectionism Supply-side policies (spending on education, infrastructure) Evaluative Depends on the strength and type of protectionism used Risk of retaliation from trading partners Opportunity cost of supply side measures (also short term expense – hoping for long term gains) OVERALL CONCLUSION

Define – exchange rate, current account Diagram – J-curve Essay 4- Evaluate the likely impact of a depreciation of the exchange rate on the current account of the balance of payments. Refer to a developed economy of your choice in your answer. Define – exchange rate, current account Diagram – J-curve Points to develop Increased competitiveness (many positive effects to discuss) Attract investment Evaluative Size and duration of devaluation PED of imports and exports J-curve (short and long run differences) – based on market reactions OVERALL CONCLUSION

Theme 2 – The UK economy – performance and policies

Essay 1- Evaluate the use of an interest rate reduction as a means of increasing the level of investment and consumption in the UK. Define – investment, consumption, interest Diagram – Points to develop Decreasing interest rate – less saving more spending Reduces opportunity cost of borrowing and investment is lower Evaluative Size and duration of change in interest rate Current rates and ability to lower Consumer confidence also affects consumption Factors other than cost of borrowing influence investment decisions (economic outlook) OVERALL CONCLUSION

Essay 2- Evaluate the extent to which policies aimed at controlling inflation and increasing standards of living may conflict when the balance of payments moves from deficit to equilibrium on the current account. Define – BoP, current account deficit, equilibrium Diagram – LRAS/ shift in AD Points to develop AD will increase with movement towards equilibrium on current account (economic growth and reduced unemployment) – increase in living standards Demand pull-inflation (conflict) –fall in living standards Evaluative Could stimulate investment (increase AS and reduce effects of demand-pull inflation) Depends on other components of AD Exchange rate may appreciate with increased demand for exports (will reduce conflict) Depends on size of deficit that is being reduced OVERALL CONCLUSION

Essay 3- Evaluate the use of supply-side policies to achieve a reduction in the rate of inflation Define – inflation, supply-side policy Diagram – LRAS (Keynesian and classical) Points to develop Encouraging enterprise and reducing state benefits (shift AS curve right) Reduce income tax (encourage increase of supply of labour) Reduce corporation tax (reinvest profits to improve efficiency/output) Privatisation (increase contestability) Investment in education and training Evaluative Supply-side take a long time to become effective Cost of implementation for some supply-side policies May not work as intended (e.g. privatisation) More disposable income from reducing income tax may push up demand and inflation Current output gap and level of factor employment impacts effectiveness of policies (Keynesian LRAS) OVERALL CONCLUSION