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Date May 2019 Marks available 10 Reference code 19M.1.SL.TZ1.3
Level Standard level Paper Paper 1 Time zone Time zone 1
Command term Explain Question number 3 Adapted from N/A

Question

Explain how aggregate demand in an economy might be affected by a rise in the exchange rate and a decrease in the income of major trading partners.

[10]
a.

To what extent is expansionary fiscal policy the best policy to achieve a reduction in the rate of unemployment?

[15]
b.

Markscheme

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.

Answers may include:

NB if only one factor of the two factors mentioned above are considered, a maximum of Level 2 should be awarded.

a.

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part B.

Answers may include:

Evaluation may include: inappropriateness of using policies to increase AD against structural, frictional and seasonal unemployment, consideration of the use of supply-side policies to tackle structural, frictional and seasonal unemployment, consideration of the use of monetary policy, problems associated with the use of expansionary fiscal
policy, consideration of the words “best”.

NB where no alternative policies are considered a maximum of Level 3 should be awarded.

b.

Examiners report

Most candidates seemed to be familiar with AD/AS analysis and could use a diagram with relative ease. Most understood how a rise in the exchange rate caused exports to be more expensive, but few related it to an increase in the demand for imports, both of which would decrease AD. Few candidates were able to provide specific examples of economies that had experienced the situations mentioned in the question.

a.

Most candidates had a fairly good understanding of what fiscal policy is and how expansionary fiscal policy is achieved, but many were unable to explain specifically how it reduces unemployment. Many could diagram how AD shifts rightwards, causing economic growth, but were not able to explain how this growth leads to a decline in unemployment. Many could evaluate fiscal policy in general, but not specifically as it relates to a reduction in unemployment. Often there was no comparison between fiscal policy and other policies to determine which was the best policy to reduce unemployment. In a minority of cases, there was confusion between fiscal policy and monetary policy.

b.

Syllabus sections

Last exams 2021 » Section 2: Macroeconomics » 2.2 Aggregate demand and aggregate supply » Aggregate demand (AD) » The determinants of AD or causes of shifts in the AD curve
Last exams 2021 » Section 2: Macroeconomics » 2.2 Aggregate demand and aggregate supply » Aggregate demand (AD)
First exams 2022 » Unit 3: Macroeconomics » 3.2 Variations in economic activity—aggregate demand and aggregate supply » 3.2.3 Determinants of AD components
Last exams 2021 » Section 2: Macroeconomics » 2.2 Aggregate demand and aggregate supply
First exams 2022 » Unit 3: Macroeconomics » 3.2 Variations in economic activity—aggregate demand and aggregate supply
Last exams 2021 » Section 2: Macroeconomics
First exams 2022 » Unit 3: Macroeconomics
First exams 2022
Last exams 2021

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