IB Economics Week 4

The week 4 revision ticklist

Revision Ticklist. Do you know…

AD/AS

AD (components and factors that shift AD)
SRAS (cost push inflation)
LRAS (Keynesian vs Neo Classical)

AD/AS equilibriums (infaltionary and deflationary gaps, demand pull inflation, demand deficient unemployment)

Multiplier (including calculations)
Accelerator

Fiscal Policy

Definition
Government Budgets
Taxation (progressive, regressive, direct and indirect)
Government Spending (capital, current and transfer payments)
Problems of a budget deficit (including financial and physical crowding out)
Benefits of a budget deficit
Expansionary and contractionary FP

Monetary Policy

Definition
Differing monetary policy regimes (e.g. UK vs Eurozone)
Expansionary and contractionary MP

Supply Side Policies

Definition
Diagram illustrating SS policies
Labour Market Policies
Product Market Policies
Benefits of SS
Problems with SS policies

Remember with fiscal, monetary and supply side policies you must learn the strengths and weaknesses of the polices if you are going to score highly for evaluation.

Short Answer Questions [10 marks]

1. Use an aggregate demand and aggreagte supply diagram to analyse the likely effects of an increase in interest rates.

2. Define crowding out. What is its importance in macroeconomic policy making?

3. With the use of examples, explain the difference between a progressive and regressive tax.

4. A government decides to raise personal income tax rates. Using diagrams, explain one demand side consequence and one supply side consequence of this decision.

Essay Questions

1a) Explain the differences between supply side and demand side policies [10]

b) Which of these policies is likely to be more effective? Justify your answer [15]

2a) Briefly explain the various major objectives of macroeconomic policy [10]

b) Critically examine the view that the control of inflation should always be the most important objective of a government [15]

3a) using examples, explain the difference between the multiplier and accelerator [10]

b) Evaluate the proposition that the most effective way to reduce unemployment is through the use of demand side policies.