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A-Level Macroeconomic Issues
What the A-Level syllabus expects for Macroeconomic Issues, and how to practise it.
What the syllabus expects
- The macroeconomic problems and where they come from: undesirable growth (persistently weak or negative, unsustainable and non-inclusive) traced to AD or AS movements, environmental degradation and unequal incomes; unemployment (demand-deficient, structural, frictional) traced to a shortfall of AD, technological change, skill mismatch and job transitions; price instability - whether deflation, cost-push inflation or demand-pull inflation - traced to movements in AD, production costs and productive capacity; and persistently large trade deficits or surpluses traced to global conditions, international competitiveness and exchange rates.
- The consequences that undesirable growth, unemployment, price instability and persistently large trade imbalances hold for economic agents and for the standard of living.
How it's examined
Questions on this topic most often ask you to explain. About 17% of the past-paper style questions in Rae's bank for this subject sit in this topic.
Worked examples
Example 1 (4 marks)
Using Extract 5, explain how the Singapore government's efforts to build more resilient supply chains could pull employment in opposite directions.
Show the worked answer
Building more resilient supply chains (through diversification, reshoring/regionalisation of production, and larger buffer inventories) raises the derived demand for labour in new domestic manufacturing, logistics, warehousing and supply-chain management, creating jobs and reducing unemployment. At the same time it pulls employment the other way: making supply chains resilient raises production costs and pushes firms to automate and restructure, while moving away from established lean, offshored operations makes some existing jobs and skills obsolete. Workers displaced from those roles who lack the skills for the new positions face structural unemployment. So the same policy simultaneously creates jobs in emerging activities and destroys or displaces jobs in others, pulling employment in opposite directions.
Example 2 (3 marks)
With the aid of an AD-AS diagram, explain the likely impact of the oil price trend on the inflation rate of a country that imports oil, such as Singapore.
Show the worked answer
The oil price fell over 2012-2020. For an oil-importing economy like Singapore, oil is a key imported input, so a lower oil price reduces firms' costs of production. On an AD-AS diagram (AD downward-sloping; SRAS/AS upward-sloping), lower costs shift AS rightward/downward from AS1 to AS2. At the given AD the general price level falls from P1 to P2 and real output rises from Y1 to Y2. The fall (or slower rise) in the general price level means a lower inflation rate - a disinflationary / cost-push-easing effect.
Example 3 (4 marks)
(b) Using the idea of a Production Possibility Curve, explain the likely short-run and long-run effects on living standards of Taiwan stepping up its research and development activity.
Show the worked answer
On a PPC with consumer goods on one axis and capital/R&D goods on the other: In the short run, to step up R&D Taiwan must reallocate scarce resources away from producing consumer goods towards R&D activity. This is a movement ALONG the existing PPC (e.g. from point A to point B), so at the moment fewer consumer goods are available. Because current consumption of goods and services falls, material living standards are likely to dip in the short run (opportunity cost). In the long run, successful R&D generates new technology and raises productivity. This shifts the whole PPC outwards, so the economy can now produce more of BOTH consumer and capital goods. Higher potential output, incomes and consumption raise material living standards in the long run.
More A-Level H2 Economics topics
Scarcity, Choice and How Resources Get Allocated · How Economic Agents Reach Decisions · The Price Mechanism and What It Does · Applying Demand and Supply Analysis · Government Intervention in Markets · What Firms Aim For · all of A-Level H2 Economics