Macroeconomic policies in a global context Theme 4

Mark scheme, including the levels grid and indicative content

Examiner's comment

This was a surprisingly popular and effective question and enabled students to use theory to support their responses. Again those that used examples and models were rewarded with Level 4 marks. It was also notable that some students still confuse the Current Account deficit and Budget deficit. The question and topic area was straightforward and rehearsed in schools, and many answers were based on countries that were drawn from their own knowledge rather that that of Brazil. The context was very helpful as well used, but it should be reminded to all candidates that there is often a request to use knowledge of at least one developed or developing country. No introduction is required in any answers, and candidates are reminded to simply start by answering the question. Definitions can be a useful way to set the groundwork, but they are not required and the knowledge marks are clearly implicit when a strong argument begins. Since the question is about trade, relevant protectionist diagrams must refer to quantity and/or value of imports. Many candidates employed a basic subsidy diagram, for example, illustrating an outward shift in supply but did not reference the quantity imported at the world price, leading to a lower level of analysis. The Marshall-Lerner condition was effectively used to evaluate the impact of currency depreciation. However, candidates need to do more than merely mention the condition. The J-curve appeared in many answers, and was particularly useful in terms of higher-order evaluation. Advice to students: Try to stick to an evaluation point and develop it fully to get to Level 3. Many able candidates analysed a relevant evaluation point up to Level 2 and then introduced another point within the same paragraph. You only need to make two clear L3 evaluation points/arguments overall, and a final judgement, to be able to achieve 9/9 for evaluation. Country of choice to get to L4. Whatever policies you choose are likely to be valid, but it is unwise to discuss fixing of interest rates or exchange rates in countries such as the UK. Context of Brazil is used by many. Very open to the use of policies. You can use more than one country despite the question saying country, for example you could use a different country as your evaluation point. However if you use many different countries, the impact of your application is likely to be weakened. If the economics is correct then this is enough to hit the levels. Eg UK can manipulate the exchange rate but then explain in the eval it isn’t likely to happen. The evaluation does not need to link with the KAA to gain L2 ev. But the best answers link the evaluation to the point being made Current account/ trade deficit can be used interchangeably The essay does need models and diagrams but they need to be in context, analysed and evaluated on a deep a level as possible. Two points is enough, but there needs to be depth of analysis and evaluation. Para 1: L2+ Para 2: E2 Para 3 : L3 Para 4: E2 Para 5 : J E2 This is a barely Level 3 answer, with L2 eval, so 9 L3 – + 6e L2+ (top L2e for being a good sustained example and there is a judgement) = 15/25 The importance of extending your analysis in context of a real world example cannot be stressed enough! You are of course allowed to use Brazil for the data context – but you really must apply everything you can even if you haven't studied that country. The question tells you about the type of exchange rate system (managed) and that should be your starting point. It's not the UK after all! Para 1: L4 Para 2: E3 Diagram is contextualised Para 3: L4 Para 4: E3 Lack of context/application is the reason for the 14/16. There is inconsistency with analysis and diagram. Ev L3 – 7/9 14+7 = 21/25 Make sure you write about the diagram you have drawn, and explain it. Examiners do love diagrams, but they must be integrated into the analysis.

Notes from the mark scheme and report

• policies: depreciation via intervention or lower rates (Marshall-Lerner, J-curve), deflationary fiscal policy, supply-side policies for competitiveness, protectionism
• refer to a country of choice
• report: some still confuse the current account deficit with the budget deficit
• protection diagrams must show the effect on imports

Mark scheme, including the levels grid and indicative content

Examiner's comment

Despite many attempts to tell the students, it is clear that some still think that a certain number of points must be made, and there are students that make a series of underdeveloped points and run out of time for their evaluation. Clearly at least two policies must be given because the question asks for plural policies, but there is no correct number of policies. The most important skill for candidates to show is that they can develop a sustained chain of reasoning on both the micro and macro side of the economy. This could involve one or more policies on each side and it is not a matter of how many policies but how well they are applied, shown to be relevant, and a chain of reasoning can emerge. One factor that the question could draw out was what type of inequality could be considered, and some of the excellent answers that were seen covered income, wealth, age, geographical, wage or gender-based arguments. Most answers included at least one diagram, and the use of at least one micro and macro diagram was an excellent way to pick up analysis marks. For example there were rises in the national minimum wage, some labelled with 2023 data, and on the macro side there were a large number of AD AS diagrams for example in showing the inflationary effects of expansionary fiscal policy. In evaluation it is certainly an effective approach to say why the policies might or might not be effective, whether there are adverse consequences, and the time lag they involve.

Notes from the mark scheme and report

• Level 4 needs at least one micro and one macro policy and UK data on inequality
• e.g. minimum wage, benefits uprated with inflation, progressive taxes, education
• develop a few policies in depth rather than listing many
• evaluate with incentive effects, time lags, income v wealth inequality

Mark scheme, including the levels grid and indicative content

Notes from the mark scheme and report

• explain how QE works (asset purchases, liquidity, lower yields, lending, AD)
• limits: banks hoard liquidity, weak confidence, lack of loan demand, fiscal austerity
• weaker answers could not develop the QE mechanism

Mark scheme, including the levels grid and indicative content

Examiner's comment

Question 6d is a 10-mark question, and students found this slightly more difficult than the previous question. This was in many instances down to students not reading the question carefully and thinking about the context they have been given. This question is about Nigeria joining the African Continental Free Trade Agreement. The key thing here is, if Nigeria did decide to join, what policies the government could put in place to alleviate the concerns of the country’s manufacturers and trade unions. If Nigeria did decide to join this trade bloc, then it would involve the country agreeing to ‘removing tariffs on 90% of goods and to liberalise services’ (Extract B lines 4-5). As such answers suggesting that Nigeria could impose protectionist policies such as tariffs or quotas against imports from other African countries simply don’t make logical sense. You can’t join a trade bloc and remove tariffs, then put those tariffs back again. This highlights the importance of students making sure their answers are sensible and plausible in light of the context of the question. The last question in Section B, question 6e, is about the benefits of increased economic integration for sub-Saharan African countries. In order to access level 3 for Knowledge, Application, and Analysis students needed to make sure they referred specifically to benefits for sub-Saharan African countries, as asked to in the question. Better answers often discussed the benefits resulting from trade creation, and the downsides (as evaluation) being caused by trade diversion. But there were other good answers on topics such as increased employment or rising incomes. In evaluation points students sometimes failed to clearly explain how it was a downside of increased economic integration, and there was sometimes a tendency to mention several different evaluative ideas rather than offer a clear explanation of a specific point. The last part of this exam paper, Section C, provides students with two essay questions. They have to choose to answer one of them. In this exam paper question 7 proved to be significantly more popular than question 8, with only around 10% of students sitting the paper choosing to answer question 8. Students, on average, did perform better on question 7, but then the numbers are so low for question 8 that this isn’t really statistically significant.

Notes from the mark scheme and report

• policies to make manufacturers competitive inside the bloc (supply-side education and healthcare, deregulation, infrastructure, temporary subsidies, lower business taxes)
• tariffs or quotas on bloc members make no sense once Nigeria has joined and removed tariffs on 90% of goods
• evaluate time lags, opportunity cost

Mark scheme, including the levels grid and indicative content

Examiner's comment

The focus of this question is on policies to reduce the negative effects of globalisation. Successful candidates focused on this aspect of the question and analysed and evaluated specific policies. They also related the policy specifically to the negative effects of globalisation. Some candidates spent too long discussing what the negative effects of globalisation were, rather than policies to solve them. Other weaker answers failed to be specific when talking about policies. This answer has only limited relevance to the question as the candidate fails to focus on analysing and evaluating any specific policies. They mention protection of the environment and wages but don't clearly offer specific policies to answer the question. As such this answer scores only 4/12. Make sure you read the question carefully and understand what the key words in it are – policies being key in this case. This is a good answer to this question that suggests two relevant policies – welfare payments and minimum wages. The candidate is a bit confused between income and wealth and it is not a perfect answer, but it does achieve a mark of 9/12 in total.

Notes from the mark scheme and report

• Level 3 needs two valid macroeconomic policies apart from protectionism (redistributive fiscal policy, expansionary monetary policy, supply-side education and infrastructure)
• focus on policies, not describing the negative effects of globalisation
• evaluate e.g. budget deficit, low confidence, time lags

Mark scheme, including the levels grid and indicative content

Examiner's comment

This question is focused on the effectiveness of quantitative easing in impacting upon Eurozone inflation. The stronger answers showed an understanding of what quantitative easing is and how it works, whilst the weaker ones were not at all certain about the process. This was the main obvious issue in this question. Evaluation was generally present and relevant; although sometimes candidates need to be sure they are explaining/justifying their evaluation points – not just stating them. This is a good, solid answer but not quite up to the same standard as the previous one. It reaches level 3 for KAA but for evaluation only level 1. The points are relevant but they are really just stated and lack relevant reasoning. The overall mark for this answer is 7/10. Where relevant, always draw diagrams to aid your explanation. This is a very high quality answer that clearly demonstrates a solid understanding of quantitative easing, as well as its effect on AD and therefore inflation (including an AD/AS diagram). The answer is also in context, both in the KAA and the evaluation. Overall this answer scores full marks – 12/12. This is a reasonable attempt to answer the question which includes good context. However, it is lacking a clear explanation of the process of quantitative easing. There is some brief evaluation at the end about the size of the multiplier and short/long run. Overall this answer gets 4 marks for KAA and 2 for evaluation – 6/12.

Notes from the mark scheme and report

• explain the QE process (asset purchases, more bank lending, lower yields, higher AD)
• weaker answers were unsure how QE works
• evaluate with banks reluctant to lend, low confidence, time lags, external causes of low inflation such as oil prices
• justify evaluation, do not just state it