IBDP Economics HL – Macroeconomics – Supply-side policies -Paper 1 Exam Style Practice Questions
Supply-side policies Paper 1?
Exam Style Questions..
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Exam Style Question for IBDP Economics HL- Supply-side policies -Paper 1
Question
Evaluate government policies to deal with the different types of unemployment.
▶️Answer/Explanation
Answers may include:
- definitions of government policies and frictional, structural, seasonal and cyclical (demand-deficient) unemployment
- diagrams might include AD/AS showing how government policies can increase AD leading to an increase in real GDP and/or a diagram to show how an increase in AD can reduce structural unemployment and the natural rate of unemployment
- explanation that fiscal, monetary or supply-side policies can all be used to reduce the different types of unemployment. Outlining the transmission mechanism involved
- examples of situations where a country has reduced a type of unemployment
- synthesis or evaluation.
Question
Discuss the view that interventionist supply-side policies are the most effective way for a government to achieve economic growth.
▶️Answer/Explanation
Answers may include:
- definitions of interventionist supply-side policies, economic growth
- diagram to show an increase in both AD and LRAS (resulting in increasing real GDP) or a production possibilities frontier diagram
- explanation that interventionist supply-side policies, such as investment in human capital, investment in new technology, investment in infrastructure or industrial policies, are conducted by the government and aim to improve the economy’s capacity to produce (the quality and/or the quantity of the economy’s factors of production)
- examples of specific interventionist supply-side polices in practice and/or countries where interventionist supply-side policies might have led to economic growth
- synthesis or evaluation (discuss).
Discussion may include: consideration of alternative policies (market-based supply-side policies, expansionary monetary policies, expansionary fiscal policies) with regard to factors such as time lags, the ability to create employment, the impact on the government budget, the short-run effect on the AD, the administrative requirements and the political support required for their implementation, social effects and effects on the environment.
Question
Evaluate the effectiveness of interventionist supply-side policies in reducing demand-pull inflation.
▶️Answer/Explanation
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 (e.g. contractionary monetary policy, contractionary fiscal policy, market-based supply-side policies).
Question
Using real-world examples, evaluate the effectiveness of monetary policy to achieve low unemployment.
▶️Answer/Explanation
Answers may include:
- Definition: monetary policy, low unemployment.
- Explanation: of the impacts that might occur on the economy as a result of its use on employment, growth, inflation and trade.
- Diagram: AD/AS diagram.
- Synthesis (evaluate): strengths and limitations of monetary policy in achieving low unemployment. Monetary policy is incremental, easily changed, flexible, fast to implement, does not burden the government’s budget; it is less effective with close to zero interest rates, and ineffective when business/consumer confidence is low; effectiveness may depend on the type of unemployment.
- Examples: real-world examples where governments have attempted to lower unemployment using monetary policy.
Question
Discuss the effectiveness of supply-side policies in reducing unemployment.
▶️Answer/Explanation
Answers may include:
- definitions of supply-side policies, unemployment
- diagram(s) to show how supply-side polices may have a short-term impact on AD, but more importantly will increase LRAS and/or how supply-side policies will affect the market for labour
- explanation of how supply-side policies (market-based and interventionist) could reduce different types of unemployment
- example(s) of where supply-side polices have been introduced to tackle unemployment
- synthesis or evaluation (discuss).
Discussion may include: consideration of the disadvantages of supply-side policies (political opposition, opportunity cost for the government budget, time lag, increased inequality in income distribution) in reducing unemployment, consideration of alternative (demand-side) policies.