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Date May 2021 Marks available 15 Reference code 21M.1.HL.TZ1.3
Level Higher level Paper Paper 1 Time zone Time zone 1
Command term Evaluate Question number 3 Adapted from N/A

Question

Explain two causes of demand-pull inflation.

[10]
a.

Evaluate the effectiveness of interventionist supply-side policies in reducing demand-pull inflation.

[15]
b.

Markscheme

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

Answers may include:

a.

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

Answers may include:

Evaluation may include: consideration of the tension between the inflationary short-run effects and disinflationary long-run effects of interventionist supply-side policies; spending on healthcare, education and infrastructure may improve equality in the distribution of income/equity; interventionist supply-side policies may be expensive and lead to high budget deficits and increased indebtedness; considerable time lags; negative effects on the environment; consideration of the strengths and limitations of alternative policies (e.g. contractionary monetary policy, contractionary fiscal policy, market-based supply-side policies).

NB It should be noted that definitions, diagrams, theory and examples that have already been given in part (a), and then referred to in part (b), should be rewarded.

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

b.

Examiners report

Many students did not make it clear that they understand that the inflation is a process and not a one-off increase in the average price level. Another common weakness was using the new classical AD/AS diagrams that shows an economy that recovers from recession (closes a deflationary gap) to illustrate demand-pull inflation. 

a.

There were many students who did not show any awareness of the short-run effects of interventionist supply-side policies on AD. There were also candidates who completely ignored the crucial long-term effects of interventionist supply-side policies in their diagrams and explanations. 

b.

Syllabus sections

Last exams 2021 » Section 2: Macroeconomics » 2.3 Macroeconomic objectives » Low and stable rate of inflation » Types and causes of inflation
Last exams 2021 » Section 2: Macroeconomics » 2.3 Macroeconomic objectives » Low and stable rate of inflation
First exams 2022 » Unit 3: Macroeconomics » 3.7 Supply-side policies » 3.7.6 Effectiveness of supply-side policies
Last exams 2021 » Section 2: Macroeconomics » 2.3 Macroeconomic objectives
First exams 2022 » Unit 3: Macroeconomics » 3.7 Supply-side policies
Last exams 2021 » Section 2: Macroeconomics
First exams 2022 » Unit 3: Macroeconomics
First exams 2022
Last exams 2021

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