Econ 2 essay writing new

Econ 2
How to write a 25 Mark Essay

Question commonalities
• Using the data and your economic knowledge, discuss the difficulties that
the Government is likely to encounter when attempting to boost the rate
of growth of the UK economy. (25 marks)
• Using the data and your economic knowledge, assess the impact on the
performance of the UK economy of a significant increase in exports
and a reduction in imports of goods and services. (25 marks)
• Using the data and your economic knowledge, discuss the view that a
sustained recovery in the UK economy will inevitably lead to an increase
in inflation. (25 marks)
• Using the data and your economic knowledge, assess the view that a
reduction in income tax is the best way to improve the performance of
the UK economy in both the short run and the long run. (25 marks)

What will you be asked about?
How do these affect or
influence macroeconomic
policy and government
objectives?
influence the Growth,
performance or recovery
of an economy?
Can these be improved,
impacted or sustained by
the factors below and are
there any difficulties in
achieving these goals

AD Components
Consumption + Investment +Government spending + (Exports – Imports)
• Consumption - Is when goods and services are purchased in an
economy
• Investment - Is when goods are purchased for future use in the hope
of future gains
• Government Spending - Is spending on consumption or investment by
the government and is known as fiscal policy. It excludes transfer
payments.
• (Exports – Imports) - Is the current account whereby the amount of
non-UK goods purchased by UK consumers is taken away from the
amount of UK goods purchased by buyers non-UK consumers.

Increases in these components shift
AD outward or to the right
Consumption Investment Government spending Exports

Decreases in these components
shifts AD inward or to the left
Consumption Investment Government spending Exports

• Supply-side measures or policies are aimed at boosting the
amount of goods and services produced in an economy.
• Policies that boost supply include;
Education and Training
Productivity
Investment
Supply-side measures

Increase in these supply-side measures
will shift AS outward or to the right
Education Investment Productivity

Decreases in these supply-side measures
will shift AS inward or to the left
Education Investment Productivity

Balance Of Payments
(Exports – Imports) - Is the current account whereby the
amount of non-UK goods purchased by UK consumers is
taken away from the amount of UK goods purchased by
buyers non-UK consumers.
Current account also includes :
• Net investment incomes
• Net transfers
Key terms: Trade deficit, trade surplus, exchange rate

Questions you could be asked
• Using the data and your economic knowledge,
assess the impact on the performance of the UK
economy of a significant increase in exports and
a reduction in imports of goods

Where are we?
objectives?
of an economy?
✓

Macroeconomic policy
• Fiscal Policy
• Monetary Policy
• Supply- side policy

Fiscal Policy
• Fiscal policy is government policy that involves taxation,
government spending and government borrowing.
• Keynesians argue the use of government fiscal policy is key to
influencing the pattern of growth within and economy whilst
monetarist believe that this is only a temporary measure and
so, monetary policy should be used to rebalance the economy.

Expansionary Fiscal Policy
Fiscal Policy – Government spending and taxation
1. Government Spending increases – Boosts AD as it is a direct
component but it is often funded by borrowing so may
cause an increase in interest rates and thus reduce
investment.
2. Taxation Decreases- If taxes decrease then people will have
more disposable income and be able to consume more, thus
increasing AD ceteris paribus

Contractionary Fiscal Policy
• Government spending decreases- If government spending
decreases AD will decrease which may cause a reduction in
interest rate to encourage consumption
• Increase in taxation- If taxes increase people will be left with
less disposable income and consumption is likely to fall

Monetary Policy
• Monetary Policy has been set independantly by the Bank of
England since 1997.
• The Bank of England set the base interest rate and control the
money supply.
• This influences inflation, output, Jobs, AD, Growth and the
exchange rates.

Expansionary Monetary Policy
1. Reduce interest rates – In a downturn with low growth rate
and low demand the Bank of England may reduce interest
rates to encourage spending and discourage saving.
2. Increase Quantitative easing – The Bank of England can print
new money or buy government bonds to increase the
money supply and encourage spending and growth within
the economy.

Contractionary Monetary Policy
• Increase in the interest rates to slow the rate of borrowing and
discourage spending to slow the rate of growth within the
economy
• Reduction in quantitative easing – Reducing the amount of
money being created and injected into the economy to reduce
the money supply and slow the rate of growth

Government Objectives
• Low unemployment – lots of people in work
• - Low and steady inflation
• Steady and sustainable economic growth
• A positive balance of payments or a strong balance of
payments position

Where are we?
objectives?
of an economy?

Using the data and your economic
knowledge, discuss the difficulties that
the Government is likely to encounter
when attempting to boost the rate of
growth of the UK economy. (25 marks)

Putting it all together
We need to make this, into this

Essay
Skills
• Knowledge
• definition
• Application
• Can you use the case
study?
• Analysis
• If/then
• This causes/as a
consequence etc
• Evaluation
• Depends upon
These are the skills the examiner
wants to see
Structure
• Intro
• Knowledge
• Argument for
intervention
• App/Analysis/Eval
• Argument against
• App/Analysis/Eval
• Conclusion
• Evaluation
This is the rough structure we
will use to show those skills

Key:
Green text = Knowledge
Blue text = Application
Orange text = Analysis
Red text = Evaluation

Introduction
The government is likely to encounter several problems when
attempting to boost the rate of growth in the UK economy. However,
which problems and their extent depend upon how the government
uses monetary and fiscal policy to boost growth, the scale of growth
desired, and whether the growth is sustainable or a short-term goal.
As Extract C states, boosting growth by raising demand often results in
high inflation and a balance of payments deficit. As a result, the UK
government finds it difficult to achieve their multiple objectives, due
to their conflicting outcomes. Supply-side remedies may be introduced
to manage such difficulties but there may also be a need for a unified
approach between monetary and fiscal policy to achieve a sustainable
rate of growth and this is what this essay will consider.
Explain what your essay is going to say and show you appreciate the
complexity of the problem

Knowledge
Economic Growth is an increase in the capacity of an economy
to produce goods and services. In Figure 1, Short-term economic
growth is the point going from A to B where the spare capacity
in the economy is being used to achieve growth. Long-term
economic growth is a shift outward of the PPF where the
productive potential of the economy has increased from point B
to C. The magnitude of trade-offs between economic variables,
such as economic growth and inflation, are likely to change
when aiming for short or long term growth. Therefore, the
distinction between short-term and long-term growth is an
important aspect of decision making when implementing
government policy.
Define your terms- Use diagrams to aid your definitions, use long run and short run to
show you understand the changes in the term used

Application
As Extract C states, an important aspect of increasing the rate of
growth is to boost aggregate demand. Keynes argued, that if the
economy is in a depressed state shown by point A on figure 2,
the government should intervene to boost demand from AD-
AD2 to reach its maximum productive potential on the LRAS
curve (point B). However, a difficulty a government faces when
implementing expansionary fiscal policy is the inflation rate
(Extract C, Line 7-8). As seen in Figure 2, boosting AD will cause
an increase in the price level (P1-P3).
Use and reference the extract- It can lead you nicely into your analysis

Analysis and Evaluation
As seen in Figure 2, boosting AD will cause an increase in the
price level (P1-P3). However, the extent to which the
government and the Bank of England will be concerned about
high inflation will depend on its current level and the signal it is
giving. For example, if the economy is suffering
from a recession, then an increase in the inflation rate may be
an indication that the government policy is working and more
spending is taking place, subsequently increasing prices.
Therefore, the inflation rate will not concern governments, as it
can simply be an economic measure of growth. However, if the
economy is in a period of stagflation, where inflation and
unemployment are rising, the government will face a dilemma.
That is, they will want to boost economic growth but any
increase in AD, as seen in Figure 2, is likely to increase inflation
and exacerbate the problem further.
Appreciate the multitude of variables- Use causal chains to allow your essay to flow
Use key terms: However, It depends upon, Nevertheless

Deeper Evaluation
Another difficulty governments are faced with when attempting to
boost growth is that they only have so much control over policy. That is
to say, the government has control of fiscal policy and supply-side
policy but the Bank of England sets monetary policy. So, any policy
decision made by the government to boost economic growth could be
offset by a conflicting monetary policy. For instance, if a government
implements an expansionary fiscal policy through a rise in government
spending, aggregate demand should increase. However, if the Bank of
England simultaneously raises interest rates to reduce inflation, the
impact of the government policy is likely to be dampened or even
stopped. It is possible however, for the governments to raise its
expectation of the inflation rate it sets for the BoE in order to stop any
monetary policy action through interest rate change. However, this
may be to the government’s detriment as the inflation rate target of
2% is a key objective for the government and seen as an integral part
of sustainable growth.
Put forward your own Ideas, as long as you can justify them you will be
showing a deeper level of understanding

Conclusion
In conclusion, the government will always face difficulties when
aiming to achieve growth, due to the conflicting nature of its
objectives. Since high inflation is often accompanied with a high
growth rate and high employment is likely to lead to high
inflation. Therefore, governments may have to prioritize certain
objectives in order to increase their effectiveness. However, it
can be possible to achieve multiple objectives through supply-
side measures, which keep inflation low and still boost growth
rates. Governments should also monitor monetary policy in
order to make any fiscal or supply-side policies more effective
and in future, it may be seen as more beneficial to allow
governments greater control of monetary policy, to ensure that
key objectives of the government can be reached.
The questions will always allow you to argue for more than one point of view. Be careful
of giving a definite answer to the question. Use your conclusion to appreciate the
complexity of the problem and give a well rounded view of ways to improve or possible
methods etc.

DONE
objectives?
of an economy?

Econ 2 essay writing new

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