Macroeconomic Objectives and Policies | Edexcel A-Level Economics A (9EC0)

Macroeconomic Objectives and Policies

131 questions
11 subtopics
Theme 2: the UK economy, performance and policies
Paper 2 and Paper 3

Covers what governments are trying to achieve and the instruments they use: monetary and fiscal policy on the demand side, supply-side measures, and the conflicts that make it impossible to hit every objective at once..

It covers possible macroeconomic objectives, monetary policy: interest rates and quantitative easing, fiscal policy: spending, taxation and the budget, demand-side policy on an AD/AS diagram, the Bank of England, and policy in the 1930s and 2008, the strengths and weaknesses of demand-side policy, market-based and interventionist supply-side policies, labour market, skills and infrastructure policies, the strengths and weaknesses of supply-side policy, conflicts between growth, inflation and the current account and the Phillips curve and the trade-offs in a policy mix.

Sample questions from Macroeconomic Objectives and Policies

Answer each one closed book first, then open the answer.

Possible macroeconomic objectives

What does the objective of a low and stable rate of inflation seek to maintain?

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Price stability without deflation.
Monetary policy: interest rates and quantitative easing

Explain how lower interest rates affect aggregate demand.

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Lower interest rates reduce borrowing costs, encouraging consumption and investment, thereby increasing aggregate demand.
Fiscal policy: spending, taxation and the budget

What is a government budget deficit?

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When government spending exceeds tax revenue in a given time period.
Demand-side policy on an AD/AS diagram

On an AD/AS diagram, what is the effect on real output when contractionary demand-side policy is applied?

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Real output decreases as the AD curve shifts leftward along the AS curve.
The Bank of England, and policy in the 1930s and 2008

What is the primary objective of the Monetary Policy Committee?

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To maintain price stability, defined by the government's inflation target of 2% CPI inflation.
The strengths and weaknesses of demand-side policy

What is a liquidity trap and why does it limit monetary policy effectiveness?

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When interest rates are already very low, further cuts have limited effect on stimulating the economy.
Market-based and interventionist supply-side policies

Why might a government reduce corporation tax as a supply-side measure?

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To encourage business investment and enterprise by increasing post-tax profits available for reinvestment.
Labour market, skills and infrastructure policies

How can introducing a national minimum wage or living wage be considered an interventionist supply-side policy?

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It can reduce poverty and increase work incentives by ensuring employment provides a meaningful income above benefit levels.

The 11 subtopics

One subtopic is one session. Work down the list.

Subtopic	What it covers	Questions
Possible macroeconomic objectives	Recall questions on economic growth, low unemployment, low and stable inflation, balance of payments equilibrium on the current account, a balanced government budget, protecting the environment and greater income equality as macroeconomic objectives.	14
Monetary policy: interest rates and quantitative easing	Recall questions on how interest rates transmit to aggregate demand, and on what quantitative easing does and why it is used.	10
Fiscal policy: spending, taxation and the budget	Recall questions on expansionary and contractionary fiscal policy, budget deficits and surpluses, and direct against indirect taxation.	12
Demand-side policy on an AD/AS diagram	Recall questions on how expansionary and contractionary policy move the AD curve, and how the shape of AS decides the outcome.	8
The Bank of England, and policy in the 1930s and 2008	Recall questions on the Monetary Policy Committee and its remit, and on the classical and Keynesian readings of the Great Depression and the response to the 2008 crisis.	13
The strengths and weaknesses of demand-side policy	Recall questions on speed and independence against time lags, the liquidity trap, crowding out and the cost of persistent deficits.	11
Market-based and interventionist supply-side policies	Recall questions on tax cuts, welfare reform, privatisation, deregulation and trade liberalisation, and on the interventionist alternatives.	14
Labour market, skills and infrastructure policies	Recall questions on trade union reform, hiring and firing rules, education and training, apprenticeships and infrastructure investment.	10
The strengths and weaknesses of supply-side policy	Recall questions on non-inflationary growth and reduced structural unemployment, set against long time lags, fiscal cost and effects on income distribution.	14
Conflicts between growth, inflation and the current account	Recall questions on why growth pulls against inflation, the current account, the environment and equality.	11
The Phillips curve and the trade-offs in a policy mix	Recall questions on what the short-run Phillips curve shows, what shifts it, and the trade-offs any policy mix forces.	14

Macroeconomic Objectives and Policies is 131 of the 2,508 questions in the guide.Get the guide, £8

How the guide is worked

Answering a question from memory stores it far better than reading the answer again. The guide runs that as a fixed procedure on one subtopic at a time, about twenty minutes a session.

Step 1 · Closed book
Cover the answers. Work through one subtopic and write down what you can. Leave blanks where you have nothing.
Step 2 · Open book
Go back to the top. Read each printed answer and write it out in full, including the ones you had right.
Step 3 · Closed book again
Same questions, same order, from memory. The gap between pass one and pass three is the session result.

Read the full method, the return schedule and the research behind it.