2016 H2 Economics Paper 2 Essay 5: Suggested Answers
How to use these essay answers. The responses below, including the part (a) answer, are structured guides to the requirements of the question, the content, analysis and evaluation a strong answer must cover, rather than full essay prose with a written introduction and conclusion. Use them to see what to include and how to build the argument, then write it up in your own continuous prose, adding your own introduction and conclusion.
This essay explains why conflicts between government objectives make macroeconomic policy decisions harder, then asks for the relative effectiveness of the policies Singapore could use to maintain a low rate of unemployment.
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Explain why macroeconomic policy decision-making is made more difficult by possible conflicts between government objectives.
Macroeconomic policy is complicated by conflicts between objectives such as stable prices, full employment, economic growth and a sustainable balance of payments. These objectives often clash when governments use demand management, so policymakers must balance trade offs.
Expansionary monetary policy and the growth versus inflation conflict. Lower interest rates reduce borrowing costs and encourage consumption and investment, raising aggregate demand from AD0 to AD1 and real national income from Y0 to Y1. This cuts cyclical unemployment as firms expand and hire. However, if the economy is near full employment the rise in AD raises the general price level from P0 to P1, causing demand-pull inflation. Higher incomes can also raise imports and worsen the current account. So a policy that boosts growth and employment can fuel inflation and external imbalance, a clear conflict of objectives.
Contractionary fiscal policy and the inflation versus employment conflict. To curb inflation a government may cut spending or raise taxes, lowering aggregate demand from AD0 to AD1 and the price level from P0 to P1. This reduces inflation, but lower demand cuts national income from Y0 to Y1 and raises cyclical unemployment as firms reduce hiring. Controlling inflation therefore comes at the cost of growth and jobs, the reverse trade off. Because each instrument helps one objective while harming another, decision making requires careful prioritisation rather than a single fix.
Show at least two conflicts, each with a policy, a worked AD shift, and the objective gained against the objective sacrificed.
Tests: Monetary policy, Fiscal policy
Assess the relative effectiveness of the alternative macroeconomic policies that the Singapore government could adopt to maintain a low rate of unemployment.
- State the objective and identify the main policy options, anchoring them to the types of unemployment they target.
- Assess expansionary fiscal policy on aggregate demand and cyclical unemployment, then note its limits in a small open economy.
- Assess exchange rate policy as managed by MAS and explain why it supports employment only indirectly.
- Assess supply-side policies and the types of unemployment they address, then note their time lags.
- Weigh the policies against each other for Singapore's structural characteristics.
- Reach a judgment on which approaches matter most in the short run and the long run.
This part is gated. The full model answer with the worked policy analysis and the evaluation, with the diagrams and the full evaluation, is in the ETG TYS Answers book from SAP and is worked live in the TYS Crashcourse. ETG students also get the AI TYS coach that guides them through this exact question. Message the team to find out more.
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Where can I get the full worked answers to the 2016 H2 Economics paper 2 essay 5?
The full model answers, with the diagrams and the higher mark evaluation, are in the ETG TYS Answers book published by SAP and sold at Popular, and are worked live in the TYS Crashcourse. Every ETG student also gets the AI TYS coach on our learning management system, which guides you through how to tackle every essay and every case study question from the last ten years.
Are these the official 2016 A Level Economics answers?
No. SEAB sets and marks the A Level paper. These are suggested answers by Mr Eugene Toh, author of the H1 and H2 A Level Economics TYS answer keys, published by SAP and sold at Popular.
How should I use these suggested essay answers?
Treat them as a guide to the requirements of the question, the content, analysis and evaluation a strong answer must cover, not as full essay prose. Write the essay up in your own continuous prose, with your own introduction and conclusion.
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