IB Economics HL 3.7.5 Effectiveness of Supply Side Policies Questions

Answers may include:
- definitions of inflation, demand-pull inflation, supply-side policies, interventionist supply-side policies
- AD/AS diagram showing an increase in AD in the short run (increasing the inflationary gap) and an increase in the LRAS (full employment level of output) in the long run (decreasing the inflationary gap)
- explanation that, in the short run, interventionist supply-side policies may increase the inflationary pressure due to their effect on AD, but the inflationary pressure will be reduced in the long run due to the increased productive capacity of the economy
- examples of interventionist supply-side policies in practice
- synthesis or evaluation.

Evaluation may include: consideration of the tension between the inflationary short-run effects and disinflationary long-run effects of interventionist supply-side policies;
spending on healthcare, education and infrastructure may improve equality in the distribution of income/equity;
interventionist supply-side policies may be expensive and lead to high budget deficits and increased indebtedness;
considerable time lags;
negative effects on the environment;
consideration of the strengths and limitations of alternative policies (eg contractionary monetary policy, contractionary fiscal policy, market-based supply-side policies).

NB It should be noted that definitions, diagrams, theory and examples that have already been given in part (a), and then referred to in part (b), should be rewarded.

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 The work does not meet a standard described by the descriptors below. ..... 0
1 There is little understanding of the specific demands of the question. Relevant economic terms are not defined. There is very little knowledge of relevant economic theory. There are significant errors. ..... 1-5
2 There is some understanding of the specific demands of the question. Some relevant economic terms are defined. There is some knowledge of relevant economic theory. There are some errors. ..... 6-9
3 There is understanding of the specific demands of the question. Relevant economic terms are defined. Relevant economic theory is explained and applied. Where appropriate, diagrams are included and applied. Where appropriate, examples are used. There is an attempt at synthesis or evaluation. There are few errors. ..... 10-12
4 There is clear understanding of the specific demands of the question. Relevant economic terms are clearly defined. Relevant economic theory is clearly explained and applied. Where appropriate, diagrams are included and applied effectively. Where appropriate, examples are used effectively. There is evidence of appropriate synthesis or evaluation. There are no significant errors. ..... 13-15