CIE A Level Economics
CIE A Level Economics 10 Government Macroeconomic Intervention Exam Questions
Free CIE A Level Economics revision for 10 Government Macroeconomic Intervention: what you need to know, common mistakes and exam-style questions with answers. Covers policy objectives, conflicts and trade-offs between objectives, the Phillips curve, and the effectiveness of fiscal, monetary and supply-side policies.
Practise 10 Government Macroeconomic Intervention with past papers
Once you have learnt this topic, find the 10 Government Macroeconomic Intervention questions in real CIE A Level Economics past papers and mark them with the mark scheme. Doing lots of real questions is the quickest way to learn how examiners ask about each idea.
About CIE A Level Economics 10 Government Macroeconomic Intervention
Topic 10 is the A Level section of the Cambridge 9708 syllabus that pulls the macroeconomic policy content together. Rather than introducing new policy tools, it asks you to analyse how the objectives of growth, low unemployment, stable prices and a sustainable balance of payments relate to one another, and where they conflict. The short-run and long-run Phillips curves are central. You then evaluate how effective fiscal, monetary and supply-side policies are at meeting all objectives at once, including the role of expectations, time lags and the state of the global economy. Answers rely on the AS content in topic 5 and the A Level theory in topic 9. Examiners reward balanced evaluation.
What you need to know
- 10.1 Policy objectives Growth, full employment, low and stable inflation and balance of payments stability, plus wider aims such as a fair distribution of income and environmental sustainability.
- 10.2 Conflicts between objectives Faster growth can raise inflation and worsen the current account as imports rise. Lower unemployment can add to inflation. Contractionary policy to cut inflation may raise unemployment and slow growth.
- Short-run Phillips curve Shows an inverse relationship between unemployment and inflation in the short run, suggesting a trade-off governments can choose along.
- Long-run Phillips curve The expectations-augmented view says the long-run Phillips curve is vertical at the natural rate of unemployment, so trying to keep unemployment below it only raises inflation. Supply-side policy can shift it left.
- 10.3 Policy effectiveness Fiscal policy is limited by time lags, crowding out and debt; monetary policy by low confidence, transmission lags and interest rates near zero; supply-side policies by cost and the time they take. A mix of policies is usually needed.
- Context in evaluation Effectiveness depends on spare capacity, openness of the economy, the exchange rate system, the credibility of the central bank and conditions in trading partners.
Common mistakes in 10 Government Macroeconomic Intervention
- Describing the Phillips curve as a link between unemployment and the price level. It links unemployment with the rate of inflation.
- Drawing the long-run Phillips curve sloping downwards. In the expectations-augmented view it is vertical at the natural rate of unemployment.
- Claiming all objectives always conflict. Supply-side improvements can raise growth and employment while keeping inflation low, so conflicts are not inevitable.
- Evaluating a policy without considering the current state of the economy. Whether expansionary policy causes inflation depends on how much spare capacity there is.
- Writing generic evaluation such as it depends. Say what it depends on and why, for example the size of the output gap or the marginal propensity to import.
Try three 10 Government Macroeconomic Intervention exam-style questions
1. Explain why there may be a conflict between economic growth and the current account of the balance of payments. (4 marks)
Show the mark scheme answer
Growth raises real incomes; with a high marginal propensity to import, spending on imports rises; demand pressure may divert goods from export markets and raise domestic prices, reducing competitiveness; so the current account may move towards deficit.
2. Using the long-run Phillips curve, explain why expansionary demand-side policy cannot reduce unemployment below the natural rate permanently. (6 marks)
Show the mark scheme answer
In the short run higher AD moves the economy up the SRPC, lowering unemployment and raising inflation; workers then build the higher inflation into expectations and wage claims; the SRPC shifts upwards and real wages return to their original level; unemployment returns to the natural rate at a higher inflation rate; so the LRPC is vertical and only supply-side policy lowers the natural rate.
3. Discuss whether monetary policy is the most effective way for a government to achieve all its macroeconomic objectives at the same time. (20 marks)
Show the mark scheme answer
Explains the interest rate transmission mechanism to AD, prices and the exchange rate; strengths: flexible, quick to change, independent central bank credibility; weaknesses: trade-offs between inflation and growth, time lags, low confidence, effect on exchange rate and current account; compares with fiscal and supply-side policies and considers a policy mix; conclusion that no single policy meets all objectives at once and the best choice depends on the main problem facing the economy.
10 Government Macroeconomic Intervention FAQs
What does Cambridge International AS and A Level Economics topic 10 Government Macroeconomic Intervention cover?
It covers macroeconomic policy objectives, the links and conflicts between macroeconomic problems including the Phillips curve, and the effectiveness of policy options in meeting all objectives.
Which paper is topic 10 examined in?
It is A Level content, assessed in Paper 3 and Paper 4, with the AS content of topic 5 assumed.
How do I revise topic 10?
Learn the Phillips curve diagrams well, then practise linking each policy to every objective so you can show trade-offs, and build evaluation around time lags, spare capacity and the policy mix.
