IB Economics SL 3.5.6 Effectiveness of monetary policy Question Bank

Answers may include:

- definitions of monetary policy and unemployment

- explain how reducing interest rates will increase economic growth and reduce unemployment

- demand and supply diagram to show how a rise in demand for labour reduces unemployment

- examples of countries using expansionary monetary policy to reduce unemployment

- synthesis or evaluation (discuss).

Discussion may include: the use of monetary policy to reduce unemployment in terms of:

- cutting interest rates may not increase the demand for labour

- time lags associated with monetary policy

- the policy is not appropriate for other types of unemployment like structural and frictional

- expansionary monetary policy might lead to inflation

- reduced borrowing costs could lead to substitution of labour with capital.

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

Opinions or conclusions should be presented clearly and should be supported by appropriate examples.

Assessment Criteria
Part (b) 15 marks

Level 0 (0 marks): The work does not reach 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.