Macro essay plans
Macroeconomic performance
Explain the main causes of rising consumption in an economy
1) Rising consumption – increase in AD, driven by economic climate
and policies
2) Low inflation -> increased purchasing power -> increased
disposable income -> increased consumer confidence -> increased
spending -> AD shift right
3) Increased growth -> wage increase, tax cuts or government
transfers -> increased disposable income -> increased consumer
confidence -> increased consumption -> consumers afford higher
quality products
4) Lower interest rates -> reduced cost of borrowing -> discourages
saving due to low rate of return -> cheaper to buy high value assets
like houses and cars -> increased consumer confidence -> stimulate
spending and investment -> increased overall consumption
5) Expansionary fiscal policy -> tax cuts -> Increased spending,
welfare benefits -> increase disposable incomes -> increase
consumption
,To what extent is a fall in savings beneficial to the UK economy.
1) Fall in savings – decreased savings ratio, increased MPC, decreased
MSC, less deposits kept in banks, increased money supply
2) Short term benefits -> increased consumption and growth ->
increased MPC -> increased AD -> increased production -> higher
revenues -> higher job creation -> more investment and
entrepreneurship -> increase in growth -> positive multiplier effect
3) Business investment -> increased business confidence and
profitability -> higher investment in capacity expansion, innovation -
> increased productivity, tech advancements -> long term
economic growth
4) Long term reduced investment if persistent fall in savings -> limited
funds available for potential growth -> low savings less capital
available for investment, infrastructure, innovation -> reduced
productivity, improvements, output -> undermine potential growth
5) Increased vulnerability to shocks -> increased household debt ->
reduced financial buffer -> greater economic instability -> less
financial resilience in crises -> pandemic impact on houses with low
savings hit hard
6) Inflation -> increased spending -> increased AD -> increased
inflation if demand pull -> unsustainable growth
7) Judgement: can provide short term benefits by stimulating
consumption and growth, essential to balance consumption with
savings to support investment and financial stability, depends on
size of decrease, nature, economic climate, country, consumer and
investor reaction
,Evaluate the view that the main objectives of the UK government
macroeconomic policy can be achieved without conflicting with each
other.
1) Objectives: economic growth, low unemployment, low inflation,
stable balance of payments
2) For: supply side policies -> increased education and training and
infrastructure -> improvement in productive capacity -> sustainable
economic growth without inflation -> targeted policies improving
skill level -> growth and low inflation
3) For: monetary policy coordination -> use of inflation targeting ->
anchor inflation expectations -> increase interest rates when
inflation is rising -> maintain price stability without having too large
an effect on growth and employment -> these objectives can be
pursued by other means through diff policies
4) Against: growth vs high inflation -> increased AD -> positive
multiplier effect -> increased incomes -> increased spending ->
increased price level -> increased investment -> increased wages -
> increased inflation -> demand outweighs supply -> especially
during rapid expansion -> 1980s UK
5) Against: low unemployment vs high inflation -> Phillips curve ->
short term trade off between unemployment and inflation -> more
employed -> higher incomes -> increased disposable incomes and
MPC -> increased demand -> increased price level -> wage
increases to attract and retain workers -> workers campaign for
higher wages -> wage price spiral -> inflationary spiral -> 1970s UK
6) Judgement: theoretically possible but requires delicate balance and
careful policy coordination, short term trade offs and external
shocks inevitable, depends on importance of objectives, policies
implemented, short term vs long term
, Assess the view that to improve the living standards of their citizens the
world would prioritise achieving economic growth
1) Living standards – income per capita, poverty rates, gini coefficient,
access to education and healthcare, quality of live, HDI, economic
growth – GDP
2) For: increased income -> business expansion -> increased
employment -> increased tax revenues from higher incomes
3) For: increased govt spending on healthcare, education,
infrastructure which boosts living standards -> provide safety nets
and services to most vulnerable
4) Against: unequal distribution of income -> disproportionately
captured by wealthy -> minimal overall improvement in living
standards -> policies to redistribute income and ensure inclusive
growth necessary
5) Against: environmental degradation -> intensive industrial activities
-> deforestation, pollution, negative production externalities ->
harm ecosystems and publics health -> long term poorer living
standards -> depletion of natural resources
6) Judgement: growth is necessary but not sufficient for improved
living standards, other measures better indicators e.g. HDI,
education and healthcare standards, life expectancy, income per
capita, should be pursued alongside other policies, depends on type
of country developed or developing, nature of growth, source of
growth, short term vs long term sustainability of growth
Macroeconomic performance
Explain the main causes of rising consumption in an economy
1) Rising consumption – increase in AD, driven by economic climate
and policies
2) Low inflation -> increased purchasing power -> increased
disposable income -> increased consumer confidence -> increased
spending -> AD shift right
3) Increased growth -> wage increase, tax cuts or government
transfers -> increased disposable income -> increased consumer
confidence -> increased consumption -> consumers afford higher
quality products
4) Lower interest rates -> reduced cost of borrowing -> discourages
saving due to low rate of return -> cheaper to buy high value assets
like houses and cars -> increased consumer confidence -> stimulate
spending and investment -> increased overall consumption
5) Expansionary fiscal policy -> tax cuts -> Increased spending,
welfare benefits -> increase disposable incomes -> increase
consumption
,To what extent is a fall in savings beneficial to the UK economy.
1) Fall in savings – decreased savings ratio, increased MPC, decreased
MSC, less deposits kept in banks, increased money supply
2) Short term benefits -> increased consumption and growth ->
increased MPC -> increased AD -> increased production -> higher
revenues -> higher job creation -> more investment and
entrepreneurship -> increase in growth -> positive multiplier effect
3) Business investment -> increased business confidence and
profitability -> higher investment in capacity expansion, innovation -
> increased productivity, tech advancements -> long term
economic growth
4) Long term reduced investment if persistent fall in savings -> limited
funds available for potential growth -> low savings less capital
available for investment, infrastructure, innovation -> reduced
productivity, improvements, output -> undermine potential growth
5) Increased vulnerability to shocks -> increased household debt ->
reduced financial buffer -> greater economic instability -> less
financial resilience in crises -> pandemic impact on houses with low
savings hit hard
6) Inflation -> increased spending -> increased AD -> increased
inflation if demand pull -> unsustainable growth
7) Judgement: can provide short term benefits by stimulating
consumption and growth, essential to balance consumption with
savings to support investment and financial stability, depends on
size of decrease, nature, economic climate, country, consumer and
investor reaction
,Evaluate the view that the main objectives of the UK government
macroeconomic policy can be achieved without conflicting with each
other.
1) Objectives: economic growth, low unemployment, low inflation,
stable balance of payments
2) For: supply side policies -> increased education and training and
infrastructure -> improvement in productive capacity -> sustainable
economic growth without inflation -> targeted policies improving
skill level -> growth and low inflation
3) For: monetary policy coordination -> use of inflation targeting ->
anchor inflation expectations -> increase interest rates when
inflation is rising -> maintain price stability without having too large
an effect on growth and employment -> these objectives can be
pursued by other means through diff policies
4) Against: growth vs high inflation -> increased AD -> positive
multiplier effect -> increased incomes -> increased spending ->
increased price level -> increased investment -> increased wages -
> increased inflation -> demand outweighs supply -> especially
during rapid expansion -> 1980s UK
5) Against: low unemployment vs high inflation -> Phillips curve ->
short term trade off between unemployment and inflation -> more
employed -> higher incomes -> increased disposable incomes and
MPC -> increased demand -> increased price level -> wage
increases to attract and retain workers -> workers campaign for
higher wages -> wage price spiral -> inflationary spiral -> 1970s UK
6) Judgement: theoretically possible but requires delicate balance and
careful policy coordination, short term trade offs and external
shocks inevitable, depends on importance of objectives, policies
implemented, short term vs long term
, Assess the view that to improve the living standards of their citizens the
world would prioritise achieving economic growth
1) Living standards – income per capita, poverty rates, gini coefficient,
access to education and healthcare, quality of live, HDI, economic
growth – GDP
2) For: increased income -> business expansion -> increased
employment -> increased tax revenues from higher incomes
3) For: increased govt spending on healthcare, education,
infrastructure which boosts living standards -> provide safety nets
and services to most vulnerable
4) Against: unequal distribution of income -> disproportionately
captured by wealthy -> minimal overall improvement in living
standards -> policies to redistribute income and ensure inclusive
growth necessary
5) Against: environmental degradation -> intensive industrial activities
-> deforestation, pollution, negative production externalities ->
harm ecosystems and publics health -> long term poorer living
standards -> depletion of natural resources
6) Judgement: growth is necessary but not sufficient for improved
living standards, other measures better indicators e.g. HDI,
education and healthcare standards, life expectancy, income per
capita, should be pursued alongside other policies, depends on type
of country developed or developing, nature of growth, source of
growth, short term vs long term sustainability of growth
