2023 H2 Economics Paper 2 Essay 6: 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 expansionary fiscal policy aimed at growth or lower unemployment may lead to undesirable consequences, then asks whether expansionary supply-side policies would be effective in achieving the macroeconomic policy aims of an economy.
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Explain why expansionary fiscal policy designed to achieve economic growth or lower unemployment may lead to undesirable consequences. [10]
Expansionary fiscal policy is an increase in government spending and/or a cut in taxation intended to raise aggregate demand (AD), lift real output and reduce cyclical unemployment. It is a key demand side policy used in a slowdown, but it can have undesirable consequences if poorly designed or timed.
How it works. Higher government spending or lower taxes raise components of AD, namely consumption, investment and government spending, shifting AD rightward from AD0 to AD1. If the economy starts below full employment, real national income rises and unemployment falls as firms hire more workers, amplified by the multiplier. But if the economy is already near full capacity, the rightward shift in AD raises prices rather than output, which is where the first undesirable consequence arises.
Demand pull inflation. Applied near full employment, extra spending pushes output beyond its sustainable level and, as AD shifts from AD0 to AD1, the price level rises. Demand grows faster than supply, and firms facing capacity constraints raise prices rather than output. Time lags worsen this, since fiscal measures need approval and time for the multiplier to work, so a policy enacted in a downturn may take effect only once the economy has recovered, overheating it.
High debt and higher interest repayments. Expansionary fiscal policy often needs deficit financing, with the government borrowing by issuing bonds and raising national debt. Rising debt means larger interest payments that crowd out spending on education, healthcare or infrastructure, reducing fiscal flexibility and possibly forcing future tax rises or spending cuts. Persistent deficits can also dent investor confidence, raising risk premiums and borrowing costs in a vicious cycle.
Show the AD mechanism, then develop at least two undesirable consequences, such as demand pull inflation near full capacity and rising public debt with higher interest repayments.
Tests: Fiscal policy, Inflation
Discuss whether expansionary supply-side policies would be effective in achieving the macroeconomic policy aims of an economy. [15]
- Define expansionary supply side policies and the set of macroeconomic aims they are meant to serve.
- Develop how such policies can be effective, through their combined demand side and capacity raising channels and the aims each serves.
- Identify the situations the policies are poorly suited to, distinguishing short run shocks from long run goals.
- Introduce the alternative policies better matched to those situations and their mechanisms.
- Weigh supply side policies against the alternatives across the full set of aims.
- Reach an evaluative conclusion on their effectiveness, arguing for a policy mix.
This part is gated. The full model answer with the worked ad and as 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 2023 H2 Economics paper 2 essay 6?
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 2023 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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