Introduction to Macroeconomic Policy | Edexcel A-Level Economics B (9EB0)

Introduction to Macroeconomic Policy

104 questions
7 subtopics
Theme 2: the wider economic environment
Paper 2 and Paper 3

Introduction to Macroeconomic Policy is examined in Paper 2, Competing in the global economy, and in Paper 3, The economic environment and business.

It covers the main macroeconomic objectives, fiscal policy, monetary policy and interest rates, supply-side policies, exchange rate policy under a floating rate, conflicts between macroeconomic objectives and choosing policy instruments and their unintended consequences.

Sample questions from Introduction to Macroeconomic Policy

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

The main macroeconomic objectives

What is meant by full employment?

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Full employment is the situation in which everyone willing and able to work at the going wage has a job, so only frictional and some structural unemployment remains.
The main macroeconomic objectives

What does a current account deficit mean?

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The country is spending more on imports and other outflows than it earns from exports and inflows, so the difference must be financed by borrowing or by selling assets abroad.
Fiscal policy

Name two direct and two indirect taxes used in the UK.

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Income tax and corporation tax are direct taxes; value added tax and fuel duty are indirect taxes.
Fiscal policy

What is crowding out?

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Crowding out is the reduction in private sector spending or investment that can occur when increased government borrowing raises interest rates or absorbs scarce resources.
Monetary policy and interest rates

Explain how a rise in interest rates reduces investment.

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The cost of borrowing to finance a project rises, so fewer projects earn a return above the cost of finance and firms postpone them.
Monetary policy and interest rates

Why is the Bank of England independent of the government in setting interest rates?

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Independence removes the temptation to cut rates for short-term political advantage, which makes the inflation target credible and anchors expectations.
Supply-side policies

Explain how spending on education and training raises productive capacity.

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A better-skilled workforce produces more per hour and can move between occupations, which raises productivity and reduces structural unemployment.
Supply-side policies

How can privatisation raise efficiency?

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Exposing an activity to the profit motive and to competition gives managers a stronger incentive to cut costs and respond to customers than public ownership does.

The 7 subtopics

One subtopic is one session. Work down the list.

Subtopic	What it covers	Questions
The main macroeconomic objectives	The four main macroeconomic objectives, actual against potential and sustainable growth, full employment and why it is not zero unemployment, the UK inflation target and the Governor's letter, stable inflation, the current account and when a deficit matters, other objectives, and why the objectives conflict.	17
Fiscal policy	Fiscal policy, expansionary and contractionary, how an income tax cut raises aggregate demand, direct and indirect taxes in the UK, budget deficits against the national debt, automatic stabilisers against discretionary policy, crowding out, corporation tax and supply, time lags, infrastructure spending, and constraints from rising debt.	15
Monetary policy and interest rates	Monetary policy and Bank Rate, how higher interest rates reduce consumption, investment and net exports, the transmission channels, quantitative easing and why it was used after 2008, the zero lower bound, Bank of England independence, time lags, overdraft costs, and why rate cuts can fail in a deep recession.	14
Supply-side policies	Supply-side policies, market-based against interventionist, income tax cuts and benefit reform, the unemployment trap, education, training and apprenticeships, infrastructure and research subsidies, privatisation and deregulation, facing inflation and unemployment together, general drawbacks, and corporation tax as a supply-side measure.	15
Exchange rate policy under a floating rate	Floating and fixed exchange rates, the advantages and disadvantages of floating, automatic correction of a current account deficit, managed floats and intervention without interest rates, foreign exchange reserves, conflict between exchange rate and inflation goals, price inelastic exports, transmission of rate cuts, and exporters' preference for stability.	12
Conflicts between macroeconomic objectives	Policy trade-offs, the short-run Phillips curve and the inflation and unemployment trade-off, the 1970s, the natural rate of unemployment and the long-run Phillips curve, supply-side improvement, growth against the environment and externalities, sustainable growth, growth against the current account and deficit reduction, time lags, and external shocks.	16
Choosing policy instruments and their unintended consequences	Keynesian and free-market views of managing the macroeconomy, the monetarist explanation of inflation, disagreement over fiscal stimulus, choosing policies for demand-deficient and structural unemployment and demand-pull and cost-push inflation, the unintended consequences of interest rates, benefit cuts and subsidies, government failure, uneven effects, and combining instruments.	15

Introduction to Macroeconomic Policy is 104 of the 2,933 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.