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Edexcel A-Level Economics AS 2.3.6 4a Demand Side Policies Demand Side the Distinction Between Fiscal and Monetary Policy Questions

Practise distinguishing fiscal and monetary policy, and judging how reflationary or deflationary demand-side tools affect macro outcomes.

Syllabus
First assessment 2019
Course
Economics YEC11
Level
AS

Exam points

  • define fiscal policy as government taxation and spending used to influence AD or economic activity
  • define monetary policy through central-bank interest rates, quantitative easing or money-supply control
  • classify tax and spending changes as reflationary or deflationary fiscal policy using the budget position
  • analyse deflationary fiscal policy through AD, output, unemployment, inflation, incomes and public services
  • evaluate by size, lags, multiplier, spare capacity, policy composition and private-sector offsets

Edexcel A-Level Economics AS 2.3.6 4a Demand Side Policies Demand Side the Distinction Between Fiscal and Monetary Policy Questions question 1

[Maximum number: 2]

Sources for use with Section C.

East African economies

Countries include Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Rwanda, Seychelles, Somalia, South Sudan, Tanzania and Uganda.

Figure 1 Annual real GDP growth, 2014–2018

Figure 1 Annual real GDP growth, 2014–2018

Figure 2 Current account on the balance of payments as a percentage of GDP, 2016–2018

Figure 2 Current account on the balance of payments as a percentage of GDP, 2016–2018

Extract A Rapid growth in East Africa

East Africa was the fastest growing region of Africa in 2018. Increasing commodity prices helped the agricultural and mining sectors contribute most to this growth. Higher foreign direct investment (FDI) in the region also contributed to economic growth. Growth in FDI in 2018 was 67% in Uganda, 27% in Kenya and 18% in Tanzania. Governments in East Africa have been investing in infrastructure, such as roads, seaports and airports.

As a result of rapid economic growth, the rate of inflation increased to 13.1% in 2016 and 14.4% in 2017. Appropriate monetary policy in the region helped the rate of inflation to fall to 8.9% in 2019.

Despite rapid economic growth rates, unemployment remains high. Many consumers struggle to meet their basic needs. The governments of the region have been advised to focus on interventionist supply-side policies. These should include continued investment in infrastructure, improving the health and skills of the labour force and increasing the supply of housing.

Extract B East African infrastructure investment needed

East African economies have under-invested in infrastructure. The roads in East Africa are in a poor condition. The combination of low speeds and long distances causes high transport costs. Rail transport is poor, which means most goods have to be transported on a congested road system. Funds from China are being used to build two rail routes in the region.

Inadequate energy supply is the biggest infrastructure problem. East Africa has the lowest energy generating capacity per capita on the continent. Poor energy supply causes blackouts. However, the region has the potential to develop hydro, wind and fossil fuel resources that could increase energy supply.

The region has the smallest proportion of its population with telephone lines and access to mobile phone networks in Africa. However, recently there has been a high level of investment in telecommunications infrastructure. This will result in significant improvements in communications.

Define the term 'monetary policy'. (Extract A, line 8)

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