10.3 Effectiveness of policy options to meet all macroeconomic objectives

The bank of China has a target inflation rate of around 3%, the Bank of India has a target inflation rate of 4% and the Federal Reserve, The European Central Bank and the Bank of England all have a 2% target inflation rate.

Consider whether central banks should have a target inflation rate of 0%.

A country imposes a tariff of 20% on imported goods and restricts the number of immigrants entering the country.

Evaluate, with the aid of a diagram(s), the impact of these two policies on the rate of inflation in that country. [20]

A country is experiencing stagflation, when there is a high rate of inflation at the same time as a negative output gap. With the help of a diagram, evaluate the effectiveness of using fiscal policy to solve this problem. [20]

With the help of a diagram, assess the effectiveness of government policies that might be used to reduce demand-pull inflation. [20]

In 2022, many countries experienced a high rate of inflation caused by disruptions to the supply of goods and services arising from the Covid-19 pandemic and the conflict between Russia and Ukraine. In one country, the government cut taxes and the central bank raised interest rates.

Evaluate the likely impact of these policies on that government's ability to control inflation. [20] [Sample answer]

With the help of a diagram, assess the effectiveness of government policies which might be used to reduce cost-push inflation. [20]

b) Discuss whether a government can achieve all its key macroeconomic aims simultaneously. [13]

b) Discuss whether monetary policy alone is sufficient for a government to achieve its macroeconomic aims simultaneously. [13]

b) Discuss whether fiscal policy alone can promote a more equal distribution of income. [13]

b) 'Economic growth will always decrease the level of unemployment but this will usually create significant problems in relation to attaining other key macroeconomic aims.' How far do you agree with this statement? [13]

a) Explain what is meant by quantitative easing (QE) and consider whether it is an effective policy to be used in a recession. [12]

b) 'Policies to achieve economic growth will inevitably cause a government budget deficit.' How far do you agree with this statement? [13]

b) To what extent do you agree that it is not possible to solve a persistent balance of payments deficit without sacrificing other key macroeconomic aims? [13]