IB Economics HL 3.5.6 Effectiveness of Monetary Policy Questions

Answers may include:
- Terminology: monetary policy, deflationary (recessionary) gap.
- Explanation: of how expansionary monetary policy can be used to counter a deflationary gap using the various tools of monetary policy, such as open market operations/quantitative easing, minimum reserve requirements and changes in the central bank's minimum lending rate.
- Diagram: AD/AS diagram to show AD shifting right with the deflationary gap being closed/eliminated.
- Synthesis (evaluate): evaluation of the effectiveness of monetary policy in terms of the limitations, eg limited scope for lowering interest rates when close to zero, low consumer confidence, ineffective in relation to structural unemployment and the possibility of greater inflation;
and its strengths, eg short time lags, incremental, flexible and easily reversible;
comparison between the effectiveness of monetary and fiscal policy when there is a large recessionary gap.
- Examples: real-world examples of monetary policy being used to counter a deflationary gap.

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

Assessment Criteria

Marks ..... Level descriptor
0:
- The work does not reach a standard described by the descriptors below.
1-3:
- The response indicates little understanding of the specific demands of the question.
- Economic theory is stated but it is not relevant.
- Economic terms are stated but they are not relevant.
- The response contains no evidence of synthesis or evaluation.
- A real-world example(s) is identified but it is irrelevant.
4-6:
- The response indicates some understanding of the specific demands of the question.
- Relevant economic theory is described.
- Some relevant economic terms are included.
- The response contains evidence of superficial synthesis or evaluation.
- A relevant real-world example(s) is identified.
7-9:
- The response indicates understanding of the specific demands of the question, but these demands are only partially addressed.
- Relevant economic theory is partly explained.
- Some relevant economic terms are used appropriately.
- Where appropriate, relevant diagram(s) are included.
- The response contains evidence of appropriate synthesis or evaluation but lacks balance.
- A relevant real-world example(s) is identified and partly developed in the context of the question.
10-12:
- The specific demands of the question are understood and addressed.
- Relevant economic theory is explained.
- Relevant economic terms are used mostly appropriately.
- Where appropriate, relevant diagram(s) are included and explained.
- The response contains evidence of appropriate synthesis or evaluation that is mostly balanced.
- A relevant real-world example(s) is identified and developed in the context of the question.
13-15:
- The specific demands of the question are understood and addressed.
- Relevant economic theory is fully explained
- Relevant economic terms are used appropriately throughout the response.
- Where appropriate, relevant diagram(s) are included and fully explained.
- The response contains evidence of effective and balanced synthesis or evaluation.
- A relevant real-world example(s) is identified and fully developed to support the argument.