IB Economics HL 3.3.10 Conflicts Between Macroeconomic Objectives Topic Practice

Answers may include:
- a definition of demand-side policies
- an explanation of expansionary demand-side policies in terms of fiscal and monetary policies
- expansionary fiscal policies involving a reduction in taxation and/or a rise in government spending and expansionary monetary policies most likely involving lower interest rates and possibly an expansion of the money supply
- an explanation of expansionary demand-side policies aiming to increase growth and to decrease unemployment/to avoid deflation/to get out of recession
- the possible conflict between expanding demand to reduce unemployment and the goal of lower inflation (the short run and long run Phillips curves and the natural rate of unemployment)
- the adverse consequences on long-run economic growth of higher rates of inflation
- the possible conflict between expanding demand and a deteriorating balance of payments on current account leading to exchange rate depreciation and imported inflation
- use of AD/AS diagram to illustrate expanding aggregate demand with AS curves of different shapes;
e.g. the importance of spare capacity in the economy
- the extent to which conflicts may be avoided through the use of accompanying supply-side policies
- evaluation of the above arguments.

Effective evaluation may be to:
- consider short-term versus long-term consequences
- examine the impact on different stakeholders
- discuss advantages and disadvantages
- prioritize the arguments.

Examiners should be aware that candidates may take a different approach which if appropriate, should be rewarded.

Assessment Criteria

Part (b) 15 marks
Level Marks
0 Completely inappropriate answer. ..... 0
1 Little understanding of the specific demands of the question. Very little recognition of relevant economic theory. Relevant terms not defined.
Significant errors. ..... 1-5
2 Some understanding of the specific demands of the question. Some recognition of relevant economic theory. Some relevant terms defined.
Some errors. ..... 6-9
3 Understanding of the specific demands of the question. Relevant economic theory explained and developed. Relevant economic terms defined.
Few errors.
Where appropriate, diagrams included.
An attempt at evaluation. ..... 10-12
4
Clear understanding of the specific demands of the question.

Relevant economic theory clearly explained and developed.

Relevant economic terms clearly defined.
No major errors.
Where appropriate, diagrams included and explained.
Where appropriate, examples used.
Evidence of appropriate evaluation. ..... 13-15