Policy Conflicts

It would appear that there is some confusion over policy conflicts. Monetary policy does not conflict with fiscal policy nor do either of them conflict with supply side policy. However, in using a certain policy, there might be a conflict of objectives. For example, increasing government spending (fiscal) would lead to an increase in economic growth and an increase in unemployment. However, it might also lead to inflation - so there is a conflict between two macroeconomic objectives.

A reduction of the interest rate (monetary) might boost aggregate demand, so leading to an increase in economic growth, but it might also lead to an appreciation of the pound, which could suck in imports, make exports less competitive and so worsen the trade balance.

Finally some advice cut and pasted from tutor 2u:

he 25 mark questions make or break your grade and uniform mark on this Unit 2 AS Macro paper. You have a choice and care should be taken before committing yourself to an answer - read through all of the questions first.

The 25 mark questions can often be quite daunting - but here are some simple but important tips:

1) Analysis diagrams: In my view, making effective use of AD-AS diagrams is absolutely crucial to scoring well on these questions. There should always be at least one AD-AS diagram and sometimes more, especially when you are making a distinction between short run and long run changes and their effect on macro performance. The examiners have reported that “Diagrams were sometimes used to support explanations and it is strongly recommended that teachers encourage their students to use them whenever it is appropriate.”

2) Macroeconomic performance: This phrase comes up all of the time. It is open to interpretation - but in your revision, always try to consider what a change in this or that economic variable might mean for

(i) The control of inflation / avoidance of deflation
(ii) Maintaining high employment / job opportunities / low unemployment rates
(iii) Achieving sustainable economic growth in the short and long run
(iv) Improving a country’s international competitiveness and trade performance
(v) Contributing to increased social welfare / rising standards of living /quality of life
(vi) Improving the state of public (government) finances - i.e. a sustainable fiscal position.

3)Consider demand and supply-side effects: This is important! Take the two variables chosen for the Jan 2009 paper, namely household savings and productivity. Changes in both (i.e. a rising savings ratio or an improvement in productivity) can have significant effects both on the level of aggregate demand and the short run business cycle and also influence long run aggregate supply - which has implications for trend growth and trade.

4) Make good use of the stimulus material: Note the question says “using the data” ....the extracts and charts are there for a reason - make good use of them e.g. going back to the data to support an answer - but avoid slavishly repeating the material ... this is data response, not data ignore or data drown!

5) Using your own knowledge: Often the difference between a good answer and a superb one .... the best students will demonstrate an awareness of what is happening both in the UK and the international economy. Bring that knowledge into play especially when evaluating arguments. The most recent examiners’ report makes this clear:

“Candidates are advised to use the media to gain a greater awareness of recent and current economic events.”

6) Make good use of evaluative phrases - such as

However
In the long run, the most effective policy is likely to be X because ….
The arguments are finely balanced but I believe that recent evidence for the UK supports X …
A possible disadvantage of this policy is that …
This policy is likely to have some effect but it depends on ......

Phrases to avoid! – an examiner will switch off completely when they read these!
In summary
To conclude
As I said before
To repeat