Practise IB Economics SL 3.5.6 by evaluating the effectiveness, limitations and trade-offs of monetary policy with marked exam evidence.
Evaluate the effectiveness of monetary policy in reducing an economy's rate of inflation.
Answers may include:
- definitions of monetary policy, inflation
- diagram to show AD shifting left as a result of contractionary monetary policy
- explanation of how contractionary monetary policy may help to reduce demand-pull inflation in terms of the mechanisms by which higher interest rates reduce AD via the effect on consumption, investment and/or net exports
- examples of contractionary monetary policy being used in practice or examples of inflation targeting
- synthesis or evaluation.
Evaluation may include: the implications of monetary policy in terms of the ability to implement changes in interest rates relatively quickly through the banking system, the possible conflicts with other objectives of economic policy, such as growth / unemployment, time lags, the independence of the central bank;
the ineffectiveness of monetary policy in relation to cost-push inflation;
the possibility that alternative policies (eg supply-side policies) may be more effective.
Assessment Criteria
Level 0 (0 marks): The work does not meet a standard described by the descriptors below.
Level 1 (1-5 marks): 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.
Level 2 (6-9 marks): 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.
Level 3 (10-12 marks): 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.
Level 4 (13-15 marks): 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.