1. Potential macroeconomic essay questions
Essay Plans
Potential macroeconomic essay questions

2. Theme 4 – A Global Perspective

3. 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

4. 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

5. 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

6. 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

7. Theme 2 – The UK economy – performance and policies

8. 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

9. 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

10. 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