Externalities

Which type of policy would have the most immediate impact in addressing a deflationary economic downturn?

Feb/March 2018

A government in a developed economy wants to reduce cyclical unemployment. Which policy is likely to be the most effective?

Feb/March 2019

‘Keynesian policies used to solve unemployment will not succeed because they will conflict with the achievement of other key macroeconomic aims.’ Assess the accuracy of this statement.

Feb/March 2019

Which mix of fiscal, monetary and supply-side policies is most likely to lower unemployment?

Feb/March 2021

Explain why an economy may be in equilibrium at a level of output below full employment, and critically assess alternative policy options that could be used to raise output to full employment.

Feb/March 2021

Which government monetary policies would be the most effective during a global recession?

Feb/March 2022

Government policies that depend on raising budget deficits to tackle unemployment will not succeed because they leave the natural rate of unemployment unchanged. Discuss the extent to which you agree with this statement.

Feb/March 2022

In what present economic circumstances are supply-side policy measures most likely to help a country meet its main macroeconomic objectives?

Feb/March 2023

Which government objective is least likely to be achieved by using macroeconomic monetary policy measures?

Feb/March 2023

State what is meant by ‘a recession’ in economics.

Feb/March 2023

Because of a cyclical downturn, a government is facing a budget deficit. If the government wants to boost aggregate demand, which policy would be the most effective?

May/June 2012

Does the information about the size of the economy (GDP) by itself allow you to conclude that the average person in Italy is better off than the average person in Ireland? Give a brief explanation.

May/June 2012

A country operates a fixed exchange rate. Which set of conditions would be most likely to lead the country’s government to cut taxation and lower interest rates?

May/June 2014

Country X has an open economy and a floating exchange rate. It then shifts to a fixed exchange rate. Which combination of policy changes would be the most effective in lowering inflation?

May/June 2016

Explain what is meant by ‘the extra money was depressing the value of the US dollar on the exchange markets’.

May/June 2017

In what circumstances would a Keynesian expansionary fiscal policy be most likely to pull an economy out of recession without creating too much inflation?

May/June 2019

‘The inability of quantitative easing (QE) to solve the problems linked with an economic recession shows the weakness of monetary transmissions mechanisms in particular and monetary policy in general.' Critically evaluate this statement.

May/June 2019

‘The inability of the policy of quantitative easing (QE) to resolve the problems linked with an economic recession reveals the weakness of monetary transmission mechanisms in particular and monetary policy in general.’ Critically evaluate this statement.

May/June 2019

Which belief do Keynesians and Monetarists both hold?

May/June 2020

A central bank raises the money supply in an effort to encourage investment and growth while the economy is in recession. In what circumstances might this policy not work?

May/June 2020

To encourage economic growth, the government enlarges its budget deficit and finances this by expanding the money supply. Which factor is most likely to lessen how effective these measures are in achieving their objective?

May/June 2020

Discuss the ways in which these policies may create conflicts for a government as it attempts to achieve its macroeconomic aims.

May/June 2020

Explain what is meant by deflation and use aggregate demand and aggregate supply diagrams to explain how it might arise in an economy.

May/June 2021

A government tries to boost growth by lowering its main interest rate. What could lessen the effectiveness of this?

May/June 2021

Which statement would be accepted by both Keynesian and Monetarist schools of thought?

May/June 2021

A government tries to boost economic growth by reducing its main interest rate. What could weaken how effective this is?

May/June 2021

Which statement would be accepted by both Keynesian and Monetarist schools of thought?

May/June 2021

Distinguish between a country’s national debt and its public sector budget deficit and consider which of these is more important.

May/June 2021

Distinguish between a country’s national debt and its public sector budget deficit, and decide which one is more important.

May/June 2021

Keynesians claim that bigger budget deficits will solve unemployment. Monetarists argue that supply side policies are more effective at lowering unemployment. Consider which view is more likely to be right.

May/June 2022

Explain the relationship between the Keynesian demand for money and the rate of interest.

May/June 2022

Keynesians maintain that raising budget deficits will tackle the problem of unemployment. Monetarists contend that supply side policies are more successful in reducing unemployment. Consider which view is more likely to be correct.

May/June 2022

Which government measure is least likely to stop economic growth from declining?

May/June 2023

Which combination of policies would be most likely to raise output?

May/June 2023

Which factor would make a supply-side stimulus to the economy less effective?

May/June 2023

Which combination of policies is most likely to raise output?

May/June 2023

Evaluate the effectiveness of using monetary policy to lower the inflation rate and the extent to which this policy could limit a government’s capacity to meet its other macroeconomic aims.

May/June 2023

The diagram shows the short-run Phillips curves SRPC1 and SRPC2 together with the long-run Phillips curve for an economy, in which NRU is the natural rate of unemployment. At the start, the economy is in equilibrium with no inflation. When the government uses a fiscal stimulus to cut unemployment, monetarists predict that there will be a sequence of movements before long-run equilibrium is restored. Which set of movements shows this prediction?

May/June 2024

An economy experiences a sharp rise in inflation because energy prices increase substantially. It also falls into a recession, with unemployment increasing. A fall in which policy lever is most likely to lessen the recession’s effects without pushing the price level up further?

May/June 2024

An economy experiences a sharp surge in inflation because energy prices rise steeply. It also falls into a recession, with unemployment increasing. A fall in which policy variable is most likely to lessen the recession’s effects without pushing the price level up further?

May/June 2024

Explain the difference between a budget surplus and a budget deficit and assess how far a budget surplus is better than a budget deficit.

May/June 2025

The article is about structural unemployment. Explain what this means and whether it is the same as the natural rate of unemployment.

May/June 2025

In some countries there has been concern about an economic recession in recent years. Explain the main characteristics of an economic recession.

Oct/Nov 2009

Explain what you regard as three economic issues in the country where you live and analyse which is the most significant.

Oct/Nov 2010

Under what circumstances might fiscal expansion be more effective at raising the level of output?

Oct/Nov 2011

Under what circumstances could fiscal expansion be more effective in raising the level of output?

Oct/Nov 2011

Explain the meaning of an inflationary gap.

Oct/Nov 2012

Under what circumstances could a rise in the government budget deficit be seen as the most suitable policy choice?

Oct/Nov 2013

An economy has underemployed resources. Which way of funding a rise in government spending is most likely to produce the largest expansionary impact?

Oct/Nov 2015

Explain why different groups of people may react differently to the level of interest rates.

Oct/Nov 2015

Country X has an open economy and a fixed exchange rate. Which mix of fiscal and monetary policies would be most effective in bringing deflation to an end?

Oct/Nov 2016

To raise the level of employment during the boom phase of the trade cycle, a government adopts an expansionary economic policy. What accounts for the economy overheating as a result?

Oct/Nov 2016

Government economic advisers do not agree about the relative effects of fiscal and monetary controls. At which stage is a time lag most likely to appear first?

Oct/Nov 2016

Imagine a country with an inflation rate far under its target level, a high level of unemployment and a substantial balance of payments deficit. What would an economic advisor to the government be most likely to advise?

Oct/Nov 2017

In a closed economy, which combination of policies is most likely to work effectively in the short run to cut inflation?

Oct/Nov 2018

Explain how the rate of deflation is measured and what impact a period of deflation has on an economy.

Oct/Nov 2018

Certain economies have entered recession, which has produced high unemployment. At the same time, they have also experienced elevated national debt and large budget deficits. On this basis, it is claimed that governments can no longer use Keynesian demand management policies to reduce unemployment. To what extent do you agree with this conclusion?

Oct/Nov 2018

‘Central banks can regulate interest rates but they cannot regulate the money supply. Commercial banks can regulate the money supply but they cannot regulate interest rates.’ How far do you agree with this statement?

Oct/Nov 2018

Imagine a country where inflation is far under the target level, unemployment is high and the balance of payments is in a large deficit. What would an economic adviser to the government be most likely to suggest?

Oct/Nov 2020

Which combination of macroeconomic policies would be most likely to succeed if the objective were to cut unemployment and lower inflation?

Oct/Nov 2020

‘The rate of interest is one of the most significant macroeconomic variables because changes in the rate of interest have a major effect on each of the main macroeconomic aims.’ How far do you agree with this statement?

Oct/Nov 2020

What factor would make a policy of increasing interest rates less effective at reducing inflation?

Oct/Nov 2021

Country X has an open economy and uses a floating exchange rate. It then switches to a fixed exchange rate. Which set of policy changes would be the most effective in cutting inflation?

Oct/Nov 2021

What do Monetarists maintain?

Oct/Nov 2022

Keynesian and Monetarist economists hold different views about how the economy operates. Which of the following combinations is correct?

Oct/Nov 2022

Using Keynesian theory of interest rate determination, explain why interest rates are at times very low.

Oct/Nov 2022

Which pairing of initial equilibrium and supply-side policy would be least likely to increase an economy’s real output?

Oct/Nov 2023

A government seeks to cut unemployment by using expansionary fiscal policy and borrows more from commercial banks, which raises its borrowing requirement. What is the outcome?

Oct/Nov 2023

Which option shows the correct result for the policy choice?

Oct/Nov 2023

Which government policy would raise economic growth but not necessarily encourage economic development?

Oct/Nov 2023

Using a diagram, assess how effective fiscal policy is in closing a negative output gap in an economy

Oct/Nov 2023

A country’s central bank increases interest rates in order to bring down the general price level. At what point is this policy likely to have the greatest effect?

Oct/Nov 2024

A government chooses to reduce the rate of interest so as to boost aggregate demand and raise employment. Why may this policy fail to be effective during a recession?

Oct/Nov 2024

An economy is facing lower incomes and higher unemployment. To encourage economic activity, the central bank chooses to lower the rate of interest. Under what circumstances would this policy be most likely to work?

Oct/Nov 2024

Evaluate, with the aid of diagram(s), the effects of these changes of expectations for fiscal policy.

Oct/Nov 2024

The diagram illustrates market failure resulting from negative production externalities. Identify the correct combination of the outcome of the market failure and the section of the diagram that indicates deadweight welfare loss.

Oct/Nov 2025

Which government policy is designed to correct a negative externality?

Oct/Nov 2025

The diagram illustrates the marginal costs and marginal benefits involved in producing a good in a free market. What is the marginal external cost when the free market is at equilibrium?

Oct/Nov 2025

An economist carries out a cost-benefit analysis of the pollution produced by a manufacturing process. Which result is most likely to be used to determine any recommendation about the optimal level of manufacturing output?

Oct/Nov 2025

The diagram illustrates positive and negative externalities arising from production and consumption. Which row correctly identifies the production and consumption externality when economic welfare is maximised?

Oct/Nov 2025

Since Adam Smith, most economists have treated competitive markets as the chief way economic activity is organised. They maintain that the interplay between producers and consumers can generate both allocative efficiency and productive efficiency. That said, it is debatable whether the market always delivers the optimum result on its own. In some cases there are strong reasons for the government to step into a market so that a better outcome is achieved than would arise from market forces alone. These are known as market failures. When firms make goods and services they look at the private costs they incur and the private benefits they obtain. For instance, a steel producer takes into account the price of iron ore, fuel, labour and administration, and then compares these costs with the revenue gained from selling steel. Yet people living close to the steelworks experience the effects of noise, dirt and polluted air created during production. Likewise, in many regions extracting iron ore may damage the environment, for example by degrading groundwater used for domestic consumption and reducing the range of wildlife and flowers. However, the competitive markets described by economists may not actually be present. Firms may join together to secure economies of scale, to pursue market domination, or to raise their market share. This sort of integration can result in a monopoly market structure. Many people think a monopoly always works against consumers because it is inefficient. Consequently, governments often place limits on monopoly activity.

Oct/Nov 2025