SECTION

TWO QUESTIONS (MACROECONOMICS)

1. Can government macroeconomic demand management policies raise the real
output of an economy in the long-run?

2. Most nations tax personal income. What are the arguments for and against
personal income taxes? At what rates would you recommend setting income taxes?
How would considerations of equity and efficiency influence your decision?

3. Unemployment can either be structural or cyclical. How would government
intervention differ in each case?

4. Under what conditions are high interest rates likely to benefit or damage a
country's economy?

5. A reduction in unemployment is desirable, but it is certain to lead to other
problems, such as inflation or balance of payments difficulties. Discuss.

6. Discuss the view that unemployment is a more serious economic problem that
inflation. Why might Keynesian and Monetarist economists disagree on questions
like this?

7. Distinguish between supply side policies and demand management policies.
Why do many governments now appear to wish to focus increasingly on the supply
side?

8. Discuss whether there is a relationship between money supply and inflation.

9. Why might knowledge of the value of the multiplier be useful to government
policy makers? Should governments make more use of this and other Keynesian
ideas, or should they adopt non-Keynesian policies?

10. Why is investment important to a country? Why do some countries have lower
rates of investment than others and what is the role of the government in
encouraging investment?

11. What are the social costs of unemployment? In view of these costs, why do some
countries give higher priority to tackling other problems such as inflation and
balance of payments difficulties?

12. A government introduces supply side policies in order to have a flexible work
force. Describe the policies, which might be introduced. Consider whether such
policies would be worthwhile.

13.

(a) What is monetarism?

(b) How would a monetarists view of economic problems (such as inflation
and unemployment) and policies differ from that of a Keynesian?

14. Evaluate the costs and benefits for a country if its government adopts
privatization as a major policy.

15. (a) Is full employment possible?
(b) Is full employment desirable?
(c) Do international trading blocks such as NAFTA or the EU increase or
reduce unemployment?

16. To what extent is it wise for governments to follow a policy of always balancing
their national budgets?

17. (a) Briefly explain the various objectives of macroeconomic policy.
(b) Critically examine the view that the control of inflation should always be
the most important objective of governments.

18. Is there a long-term trade-off between inflation and unemployment?

19. (a) Explain how governments can use fiscal policy to redistribute income.
(b) Evaluate the advantages and disadvantages of policies aimed at reducing
income inequalities

20. What is wanted is not inflation (a rise in the general price level) or deflation (a
fall in the general price level) but price stability. Discuss.

21. (a) What are the consequences of unemployment in an economy?
(b) Examine the strategies that may be used to reduce unemployment, referring to
more developed countries and less developed countries in your answer.

22. (a) What are the main macroeconomic objectives of government?
(b) Assume the government chooses to pursue one of these objectives.
Evaluate the possible consequences for the other objectives.

23. Evaluate the view that the achievement of price stability should be the major
objective of government economic policy.

24. (a) With the help of diagrams distinguish between demand-pull and cost-
push inflation.
(b) Explain which policies would be appropriate to deal with these two types
of inflation

25. Unemployment remains persistently high in a majority of countries throughout

the world
(a) Explain the economic problems that high unemployment may cause for a
country.
(b) Discuss the reasons why governments find the goal of full employment difficult
to achieve.

26. Evaluate the effectiveness of demand-side and supply-side policies in the short
and long run.

27. (a) What are the possible causes of inflation?
(b) Evaluate possible policies that might be used to lower the natural rate of
unemployment

28. (a) Using suitable examples, explain the difference between the multiplier
and the accelerator
(b) Evaluate the proposition that the most effective way to reduce
unemployment is through the use of demand-side policies.

29. (a) Explain the relationship between the Lorenz curve and the GINI
coefficient
(b) Evaluate the effectiveness of the various methods that government may
use to redistribute income

30. (a) Explain the difference between demand-side and supply-side policies
(b) Higher economic growth can only be achieved through the
implementation of supply-side policies

31. (a) Explain how interest rates can be used to bring about an increase in
economic activity
(b) Discuss the strengths and weaknesses of demand-side policies

32. (a) What are the causes of inflation
(b) Evaluate the possible effects of a persistently high inflation rate on a
countrys current account balance and its exchange rate

33. (a) Explain why a government might find it difficult to maintain a low rate of
inflation as the economy approaches full employment
(b) Evaluate the proposition that the priority in economic management
should be the maintenance of low unemployment

34. (a) Using one or more diagrams, explain the difference between the
equilibrium level of national income and the full employment level of national
income
(b) Evaluate the policies a government may use to increase the full
employment level of national income

35. (a) The effect of a decrease in aggregate demand on output and the price
level depends on the shape of the aggregate supply curve. Explain this statement.
(b) Evaluate the likely effects of a falling rate of inflation on the performance
of an economy

36. (a) Explain the difference between progressive taxation and regressive
taxation.
(b) Evaluate the possible effects of a decrease in direct taxation on a
countrys inflation rate, unemployment rate and balance of payments.

Short Essay Questions MACROECONOMICS

37. What difficulties arise in measuring unemployment?

38. Outline the difference between a short-run long-run Phillips curve. (HL Only)

39. Once statisticians have collected data on the different types of expenditure
within a country, what are the main problems that have to be overcome in order to
use these figures to arrive at an estimate of national income?

40. Explain how the multiplier and the accelerator might be linked to each other.

41. Explain the concept of the Natural Rate of Unemployment.

42. Explain how double counting can occur in calculating national income, and how
measuring value added can overcome this problem.

43. Explain why some countries might find it difficult to achieve full employment at
the same time as avoiding a balance of payments problem.

44. Why might knowledge of the shape of a countrys Phillips Curve might be useful
to government officials?

45. What is demand-deficient (cyclical) unemployment and what can be done about
it?

46. Keynesians and Monetarists have different views of the likely shape of a
countrys aggregate supply curve. Using diagrams, show how these shapes can affect
macroeconomic policy.

47. What measures would you need to take in order to calculate the value of a
countrys multiplier?

48. How would a change in the marginal propensity of import affect the value of the
multiplier?

49. Explain why a country coming out of a recession might experience a balance of
payments deficit.

50. What are the main problems involved in obtaining a measure of inflation?

51. For what reasons might a countrys Gross Domestic Product at factor cost be
higher than its Gross National Product at factor cost?

52. State what Keynesian economists mean by the equilibrium level of income and
the full employment level of income and explain why these two levels of income
might not be equal to each other.

53. Discuss why higher interest rates may be good news for some people, but bad
news for others.

54. Why might an increase in government expenditure have a greater multiplier
effect than a corresponding reduction in direct taxes?

55. What is structural unemployment and what measures might governments take
to combat it?

56. A company builds a new production unit in a certain country. Explain how this
investment is likely to have a multiplier effect, and discuss reasons why this effect
might take time to work.

57. Why might an increase in a countrys budget deficit be followed by an increase in
its external trade deficit?

58. What is crowding out and why do some economists consider it important?

59. What is the natural rate of unemployment?

60. What is demand pull inflation and what can governments do about it?

61. Define crowding out. What is its importance in macroeconomic policy
modeling?

62. Use an aggregate demand/aggregate supply diagram to analyse the likely effects
of an increase in interest rates.

63. Examine two reasons why a government might wish to control increases in its
expenditure.

64. Use an aggregate demand / aggregate supply diagram to analyse the likely
effects of an increase in income tax.

65. Explain why might the goal of full employment conflict with the goal of economic
growth?

66. Use an aggregate demand/aggregate supply diagram to explain how cost push
inflation may occur and outline two ways in which it might be controlled.

67. Explain two policies that a government might use to deal with the problem of
demand-deficient (cyclical) unemployment.

68. What are the likely consequences of deflation for a countrys economy?

69. Using an appropriate diagram, explain how economists measure income
distribution.

70. Use the Phillips Curve to explain the concept of the natural rate of
unemployment.

71. Explain the multiplier effect of an increase in government spending.

72. Using AD/AS diagrams, analyze the likely impact on an economy of the
following:
(a) A general rise in wage costs
(b) The discovery of new raw material sources
(c) Capital stock increases.

73. Explain how an increase in government spending can lead to crowding out.

74. Explain how a progressive tax system may be used to redistribute income.

75. Macroeconomic equilibrium does not necessarily occur at full employment.
Explain this statement using the concepts of inflationary and deflationary gaps.

76. With the use of example, explain the difference between a progressive and a
regressive tax.

77. A government decides to raise personal income tax rates. Using diagrams,
explain one possible demand side consequence and one possible supply