Macroeconomic Policies and Impact on Firms and Individuals | Edexcel A-Level Economics B (9EB0)
Macroeconomic Policies and Impact on Firms and Individuals
- 170 questions
- 12 subtopics
- Theme 4: making markets work
- Paper 1 and Paper 3
Macroeconomic Policies and Impact on Firms and Individuals is examined in Paper 1, Markets and how they work, and in Paper 3, The economic environment and business.
It covers aggregate demand and its components, aggregate supply, full capacity output and the output gap, the multiplier effect, shifts in AD and AS: inflation, unemployment and growth, fiscal policy: government spending and taxation, monetary policy: the Bank of England, interest rates and quantitative easing, demand-side policies on the AD/AS diagram: investment, jobs and prices, time lags, policy conflicts and the limits of demand-side policy, market-based supply-side policies, interventionist supply-side policies, supply-side policies on the AD/AS diagram: strengths and weaknesses and comparing macroeconomic policies and judging their success.
Sample questions from Macroeconomic Policies and Impact on Firms and Individuals
Answer each one closed book first, then open the answer.
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Aggregate demand and its components
What counts as investment when measuring aggregate demand?
Show the answer
Investment is spending by firms on capital goods such as machinery, buildings, vehicles and technology, together with additions to stocks. -
Aggregate supply, full capacity output and the output gap
How does a large rise in the statutory minimum wage affect short-run aggregate supply?
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It raises wage costs for labour-intensive firms, shifting short-run aggregate supply to the left unless productivity rises to offset it. -
Shifts in AD and AS: inflation, unemployment and growth
Why is a leftward shift in aggregate supply especially awkward for policymakers?
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Inflation and unemployment worsen at the same time, so a policy tight enough to control the inflation deepens the fall in output and jobs. -
Fiscal policy: government spending and taxation
How does an increase in employers' National Insurance contributions affect a labour-intensive firm?
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It raises the cost of employing each worker, so the firm's margins are squeezed and it may raise prices, slow recruitment or cut hours; across the economy such a rise shifts short-run aggregate supply to the left. -
Demand-side policies on the AD/AS diagram: investment, jobs and prices
Why does the effect of a rightward shift in aggregate demand depend on the slope of aggregate supply?
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Where aggregate supply is flat the extra demand is met almost entirely by higher output, whereas where it is steep or vertical the extra demand is absorbed almost entirely by higher prices. -
Time lags, policy conflicts and the limits of demand-side policy
Why does economic growth conflict with environmental objectives?
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Higher output usually means more energy use, emissions and resource depletion, so growth worsens environmental damage unless it is decoupled through cleaner technology and regulation. -
Interventionist supply-side policies
Name three kinds of infrastructure investment that raise productive potential.
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Transport networks such as road and rail, digital networks such as broadband and mobile coverage, and energy generation and grid capacity. -
Supply-side policies on the AD/AS diagram: strengths and weaknesses
What equity trade-off do market-based supply-side policies create?
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Measures such as lower benefits, weaker employment protection and cuts in top tax rates may raise output but concentrate the gains on higher earners and the losses on the low paid, so inequality widens.
The 12 subtopics
One subtopic is one session. Work down the list.
| Subtopic | What it covers | Questions |
|---|---|---|
| Aggregate demand and its components | Aggregate demand and its four components, the largest component, why the curve slopes downwards, investment in the national accounts, how consumer confidence, interest rates, postponed investment, sterling and income tax shift it, movements against shifts, order books as indicators, house prices and consumption, and imports. | 14 |
| Aggregate supply, full capacity output and the output gap | Aggregate supply, why short-run aggregate supply slopes upwards, long-run aggregate supply and its classical shape, full capacity output, shifts from productive capacity, energy prices, the exchange rate and the minimum wage, demand growth at full capacity, rising unit costs, and the output gap and what a negative gap means for a firm. | 14 |
| The multiplier effect | The multiplier effect and how an injection multiplies through the economy, the multiplier formula and the marginal propensity to consume, the three withdrawals, calculating the multiplier and the rise in national income, imports, the multiplier in reverse after a closure, injections that raise prices, the accelerator effect, and why the multiplier is hard to predict. | 13 |
| Shifts in AD and AS: inflation, unemployment and growth | Demand-pull and cost-push inflation on the AD/AS diagram, rising demand with spare capacity, leftward shifts in aggregate supply and why they are awkward for policymakers, cyclical unemployment, actual against potential growth, non-inflationary growth, inflation and unemployment, rising input costs, prices in recession, the trade balance in a boom, and limits of the model. | 14 |
| Fiscal policy: government spending and taxation | Fiscal policy, direct and indirect taxes and UK examples, expansionary and contractionary policy, the budget deficit against the national debt, current against capital spending and long-run aggregate supply, VAT cuts for retailers, employers' National Insurance, automatic stabilisers, corporation tax and inward investment, crowding out, and progressive taxes and the multiplier. | 16 |
| Monetary policy: the Bank of England, interest rates and quantitative easing | Monetary policy and the Bank of England, Bank Rate, the inflation target and its price index, missing the target, central bank independence, how a rise in Bank Rate reduces inflation, highly geared firms, interest rates and the currency, quantitative easing, why it is used near zero rates and its risks, quantitative tightening, monetary against fiscal policy, and forecast-based rate setting. | 16 |
| Demand-side policies on the AD/AS diagram: investment, jobs and prices | Income tax cuts and the aggregate demand curve, expansionary policy in a deep recession and at full capacity, the inflationary cost of demand-side policy and the slope of aggregate supply, contractionary monetary policy, a positive output gap, encouraging business investment, capital allowances, macroeconomic stability, job creation, cost-push inflation, anchored expectations, and rate cuts in deep recessions. | 14 |
| Time lags, policy conflicts and the limits of demand-side policy | Recognition, implementation and impact lags, the different lag profiles of fiscal and monetary policy and how lags destabilise, the strengths and weaknesses of monetary and fiscal policy, the Phillips curve, conflicts between growth and the current account, the environment and deficit reduction, inflation against investment, uneven effects on firms, and policy trade-offs. | 15 |
| Market-based supply-side policies | Supply-side policy, market-based against interventionist, income tax cuts and uncertain labour supply effects, benefit reform and the unemployment trap, privatisation, deregulation and ending statutory monopolies, competition policy, trade union reform, labour market flexibility and its benefits and costs to workers, trade openness, corporation tax cuts, and fairness criticisms. | 16 |
| Interventionist supply-side policies | Interventionist supply-side policy, education spending and long-run aggregate supply, under-provided training and the apprenticeship levy, transport and digital infrastructure and their benefits and multiplier, criticisms of state-led investment, industrial strategy and picking winners, research and development subsidies, and regional policy for unequal productivity. | 13 |
| Supply-side policies on the AD/AS diagram: strengths and weaknesses | Shifting long-run aggregate supply to the right and its effect on prices and output, the improved inflation and unemployment trade-off, supply-side policies that also shift aggregate demand, cutting employers' National Insurance, the strengths and weaknesses of supply-side policies, deep recessions, the equity and fiscal trade-offs, environmental conflicts, and slow effects of training subsidies. | 12 |
| Comparing macroeconomic policies and judging their success | The four standard macroeconomic objectives, criteria for judging an employment policy and cost per job created, counterfactuals, the speed of demand-side and supply-side policy and when each fits, combining approaches, measuring effects on firms, distributional effects, attributing changes in inflation, opportunity cost, the economic cycle, and the limits of GDP growth as a measure. | 13 |
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.
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Step 1 · Closed book
Cover the answers. Work through one subtopic and write down what you can. Leave blanks where you have nothing.
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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.
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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.
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