WJEC · Macroeconomics · Macroeconomic objectives and policy
WJEC Economics past paper questions: Macroeconomic objectives and policy
Every WJEC question on Macroeconomic objectives and policy from 2016 to 2025: 7 essays, 23 data response questions, 2 short answer questions and 13 multiple choice questions. It covers Measuring economic performance, Aggregate demand, International trade and exchange rates, The financial sector and Government intervention in markets. Each question links to its paper, mark scheme and examiner report.
SubtopicsMeasuring economic performance 17Aggregate demand 7International trade and exchange rates 4The financial sector 3Government intervention in markets 2Public finances and the role of the state 2Market failure 2The labour market 1
Essay questions on macroeconomic objectives and policy
Explain how both quantitative easing and quantitative tightening are expected to work in an economy.
Examiner insight
- What to cover
- Cover both QE and QT. QE: the central bank buys bonds from financial institutions, raising bond prices and lowering yields, injecting liquidity and lowering interest rates, so lending and AD rise. QT: the reverse, selling bonds or letting them mature, draining liquidity and raising yields.
- Watch out
- Answering on QE alone limits the response, and confusing the two produced Band 0 or 1 marks. Go past the liquidity point to bond prices, yields and interest rates, which is what separates the bands.
Explain how both discretionary and automatic government fiscal policy can lead to budget (fiscal) deficits.
Examiner insight
- What to cover
- Define both. Discretionary policy is a deliberate change in tax or spending. Automatic stabilisers operate without any decision as the cycle turns. Link each to a budget deficit through specific changes in government revenue and spending.
- Watch out
- Real examples are the most effective way to show the difference, for example rising unemployment in the financial crisis widening the deficit automatically, against the deliberate furlough spending during covid. Link both forms to the deficit, not just one.
Discuss the view that it is always appropriate to tighten fiscal policy during periods of economic downturn as a way of reducing a budget (fiscal) deficit.
Examiner insight
- What to cover
- Keep the downturn in the frame at every step. Tightening fiscal policy in a downturn cuts AD further, deepens the fall in output and employment, and can worsen the cyclical part of the deficit through lower tax revenue and higher benefit spending. The case for it rests on debt sustainability, credibility with lenders and borrowing costs.
- Watch out
- Many candidates wrote about the effects of tightening fiscal policy without ever placing the economy in a downturn, which blocked top Band 2 and Band 3 marks.
Explain how the position of an economy's long-run Phillips curve could shift. Use a diagram in your answer.
Examiner insight
- What to cover
- Identify the long run Phillips curve as vertical at the natural rate, then explain the supply side factors that shift it: training and education, labour market flexibility, lower benefit replacement rates, technology, migration.
- Watch out
- The main failure was confusing the long run and short run curves. For top AO3 you must explain that after the shift, the inflation and unemployment trade off now happens at a different level of unemployment, and you must refer to your own diagram.
Discuss the likely effectiveness of policies, other than the use of interest rates, to reduce the rate of inflation in an economy.
Examiner insight
- What to cover
- Exclude interest rates. Cover contractionary fiscal policy and supply side policies, and go further for credit: reversing quantitative easing, using the exchange rate, and direct wage or price controls. Explain exactly why inflationary pressure falls in each case.
- Watch out
- The commonest evaluation error was listing unwanted side effects instead of judging whether the policy actually reduces inflation.
Explain, using diagrams, the shape of the short-run and long-run Phillips curves.
Examiner insight
- What to cover
- Explain, do not just draw. The short run curve slopes down because unexpected inflation cuts real wages and raises labour demand. The long run curve is vertical at the natural rate once expectations adjust, giving the expectations augmented story.
- Watch out
- As with the other part (a) questions, high AO1 and low AO3 was the pattern. The marks are in the explanation of the shapes and the shift between short run curves.
To what extent are supply side policies effective in reducing unemployment in an economy?
Examiner insight
- What to cover
- Answer the question asked: how effective are supply side policies at cutting unemployment. Take specific policies, not categories: a named type of training, transport or broadband infrastructure, deregulation, lower benefit replacement rates. Link each to a type of unemployment.
- Watch out
- Two traps: turning this into are supply side policies the most effective policy, which brings in too much on alternatives, and the standard time lags and high opportunity cost evaluation. Remember laissez faire supply side policies need no government spending at all.
Data response questions on macroeconomic objectives and policy
According to property website Zoopla, 60% of all house purchases are made using a mortgage. With reference to the housing market, describe one cause and one consequence of asset bubbles.
Outline what is meant by the Bank of England's status as a lender of last resort.
Discuss whether the Bank of England's MPC should only consider the current inflation rate when setting the base interest rate.
Examiner insight
- What to cover
- First explain why current inflation matters, following the transmission mechanism from the base rate through consumption and investment to the price level and to household purchasing power.
- Watch out
- Tie each other factor back to the question with a hypothetical, for example if the base rate rose, this is what would happen to unemployment. Superficial evaluation, often from running out of time, was common on this final question.
Case study: All about trade
With reference to Extract B, outline two supply-side policies that might increase the potential output of the agricultural industry in Wales.
Analyse the likely impact of negative interest rates on aggregate demand in Sweden.
Assess the performance of the Bank of England in meeting its inflation target from September 2020 to September 2022.
Explain why achieving low inflation may conflict with one other government macroeconomic policy objective.
Case study: REDUCING THE THREAT OF CLIMATE CHANGE
To what extent might UK Government policies to tackle climate change cause conflicts with their macroeconomic policy objectives?
Examiner insight
- What to cover
- Name a specific climate policy, such as a carbon tax, the ETS or subsidies for renewables, then trace it into named macroeconomic objectives: growth, employment, inflation, the current account, and the budget.
- Watch out
- The objective is equilibrium on the current account of the balance of payments, not the balance of payments as a whole. Tie every point to a specific policy rather than offering general commentary.
Case study: A NEW COAL MINE IN THE UK
Describe the likely impact of the new coal mine on the UK Government's budget/fiscal balance.
"The Phillips curve relationship no longer exists." To what extent does this appear to be true in the US?
Examiner insight
- What to cover
- State the Phillips curve relationship, an inverse link between unemployment and wage inflation, then test it against the US data in Figures 2 and 3, including the 2020 points, and use Figure 1 as well.
- Watch out
- Do not just compare data points to agree or disagree. Answers with no economic theory behind them scored Band 0 or Band 1 for both AO3 and AO4. Note that Figure 1 shows inflationary expectations, not inflation.
With reference to the EU, outline what is meant by economic integration.
Apart from conducting monetary policy, explain one role of the Bank of England.
Case study: INTERESTING INTEREST RATES
(i) Using the data, explain how "raising interest rates by 50%" and "increasing interest rates by 0.25 percentage points" are the same thing. (ii) "Someone with a £5 000 savings balance benefiting from a 0.25 percentage point rate increase will see their interest income rise by £1.04 per month." Show how this was calculated.
Case study: INTERESTING INTEREST RATES
(i) Other than inflation, state two factors that the Monetary Policy Committee is likely to take into account when setting the bank rate. (ii) In addition to setting the bank rate, the Bank of England has many other roles. State two other roles of the Bank of England.
Case study: INTERESTING INTEREST RATES
Using an AD/AS diagram, evaluate whether the use of demand-side policies always leads to a conflict of policy objectives.
Examiner insight
- What to cover
- Three things are needed, and weaker candidates did only two. Name a demand side policy, show how it achieves one stated objective, then show how it moves a second stated objective away from target, which is the conflict.
- Watch out
- State the policy objectives explicitly rather than writing loosely about higher inflation or lower unemployment. Many candidates offered no evaluation at all.
Case study: CHANCELLOR UNDER PRESSURE
Discuss whether a Keynesian approach to fiscal policy will be beneficial for the UK economy.
Examiner insight
- What to cover
- Stay on Keynesian demand side fiscal policy. Explain how higher government spending or lower taxes raise AD, with the multiplier, and why Keynesians think this is needed when the economy is below capacity. Tie it to the UK data and Philip Hammond's position.
- Watch out
- Do not answer with policy X is poor but policy Y is better. Supply side effects of health and education earned limited credit, and anything about interest rates earned none.
If the European Central Bank increases the base interest rate, explain the likely consequences on the trade of goods and services between the US and the Eurozone.
Case study: HAS BRAZIL'S BUBBLE BURST?
Discuss whether Alexandre Tombini should "keep interest rates high". (line 40)
Examiner insight
- What to cover
- Use more than one strand of the transmission mechanism. Higher rates cut consumption and investment, raise the exchange rate and cut import prices, and affect confidence and asset prices. Apply each to Brazil using the hooks in the last few lines of the data.
- Watch out
- Only discussing consumption against saving is not enough analysis for 12 marks. Many answers were bland and unapplied despite the hooks in the data.
Case study: Education, Education, Education or Inflation, Inflation, Inflation
What is meant by productivity?
Case study: Education, Education, Education or Inflation, Inflation, Inflation
To what extent do you agree with the statement: "the supply side policies of cutting direct taxes and improving infrastructure are more effective strategies for reducing inflation than a rise in interest rates"?
Examiner insight
- What to cover
- Compare two things: cutting direct taxes and improving infrastructure as supply side policies, against a rise in interest rates. Show the supply side route working through lower costs and a rightward shift in LRAS, and the monetary route working through lower AD.
- Watch out
- A significant number did not see the deflationary side of a direct tax cut and treated it only as an AD boost, which made the answer one sided. Address every aspect of the question.
Case study: RECESSION TESTS RUSSIA'S RESILIENCE
Discuss the likely effectiveness of Russia's monetary policy in its attempt to support the rouble.
Examiner insight
- What to cover
- Explain the two tools the data signposts: raising interest rates to attract hot money and buying roubles on the foreign exchange market with reserves. Show each shifting demand for the currency and supporting the rate.
- Watch out
- Evaluation was the weak point. Throwaway lines such as there is a time lag or it depends how much rates change earned almost nothing, especially as the actual rate changes were given in the data.
Case study: RECESSION TESTS RUSSIA'S RESILIENCE
To what extent should low inflation be the main macroeconomic objective for Russia?
Examiner insight
- What to cover
- Build two developed arguments for low inflation as Russia's priority, using the hooks in the data: rising poverty, falling confidence, a contraction in aggregate demand, uncompetitive export prices.
- Watch out
- Answers that listed the macro objectives from generic notes without developing them for Russia scored poorly. Any objective could reach full marks if it was argued in the Russian context.
Case study: WALES BOTTOM OF THE UK'S WEALTH TABLE
To what extent will an increase in interest rates by the Bank of England be harmful for the Welsh economy?
Examiner insight
- What to cover
- Work through the transmission mechanism of a rate rise, then apply each step to Wales: mortgage costs and consumption, investment by Welsh firms, the exchange rate and Welsh exporters, and the structure of the Welsh economy.
- Watch out
- Many answers were correct on monetary policy in general but carried no Welsh context, often because time ran out at the end of the paper. Answers without context could not reach the higher skills bands.
Short answer questions on macroeconomic objectives and policy
Using an example of a fiscal supply-side policy, discuss whether it would be effective at achieving the policy objective of low inflation in this economy.
Discuss the view that the Bank of Japan should raise its inflation target from 2 % to 4 %.
Examiner insight
- What to cover
- Keep the focus on raising the target, not on inflation being higher. Explain how a higher target works through inflationary expectations, the real interest rate and the incentive to spend rather than hold cash in a deflationary economy.
- Watch out
- Most answers described the problems of higher inflation instead of a higher target, which caps the marks badly.
Multiple choice questions
- AS Unit 1, June 2025, Q10
Which of the following is an approximate figure for the UK government's annual tax revenue received?
- AS Unit 1, June 2024, Q2
The use of expansionary demand side fiscal policy would be most likely to:
- AS Unit 1, June 2024, Q15
Which of the following is most likely to cause a decrease in consumption in an economy?
- AS Unit 1, June 2023, Q7
The government reduces the amount of welfare payments (Jobseeker's Allowance) that is paid to its unemployed citizens. As a result, businesses see more people applying for their job vacancies. This is an example of which economic concept?
- AS Unit 1, June 2023, Q9
Which one of the following would be most likely to cause an increase in an economy's level of aggregate demand?
- AS Unit 1, June 2022, Q3
Which one of the following is an example of expansionary fiscal policy?
- AS Unit 1, June 2022, Q9
The country of Simonia has a budget deficit of $50 bn. It also has a trade deficit of $50 bn. During the year, the government increases its spending by $20 bn and the trade deficit increases to $70 bn. Assuming there is no change to any…
- AS Unit 1, June 2022, Q12
If the Bank of England decreases the UK's base interest rate, this is most likely to cause:
- AS Unit 1, June 2019, Q6
Which of the following is most likely to cause an appreciation of the pound sterling?
- AS Unit 1, June 2019, Q8
The graph below shows Japan's interest rates over a given time period. 0.6 0.6 % % 0.4 0.4 0.2 0.2 0 0 _ _ _ 0.2 0.2 2008 2010 2012 2014 2016 What is the most likely effect on the Japanese economy of the interest rate changes shown in the…
- AS Unit 1, June 2018, Q12
Which of the following is not a function of the Bank of England?
- AS Unit 1, June 2016, Q6
The diagram below shows the movement of the UK exchange rate against the US dollar (from P to P1). Price of £s in $s D S D1 P P1 S D D1 Quantity of £ 0 Q1 Q One reason for this could be that:
- AS Unit 1, June 2016, Q14
Consumption within an economy will be most likely to rise if:
Question text is quoted from the question papers, © WJEC CBAC Ltd, for students’ private study. Open the official papers and mark schemes from the links on each question. Examiner insights are written with AI assistance and moderated by Finn.