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Evaluate policies the government can use to increase the rate of economic growth.

Start by defining key terms

"rate of economic growth" - the annual percentage increase in real GDP, which is one of the government's main macroeconomic objectives.

I would approach this question by considering the two main types of policy the government can use: demand side (which aim to increase AD) or supply side (which aim to shift out LRAS).

Lets consider one of each.

Demand side - we could consider either monetary policy of fiscal policy. Given time constraints in the exam, it may be worth only considering one. I will evaluate monetary policy.

The Bank of Egland could lower interest rates to increase the rate of economic growth. By lowering Bank Rate (called expansionary monetary policy), this will lead to a lower LIBOR (London Inter Bank Offer Rate - the rate at which banks lend to each other). Through banks, this will then be passed on to other rates, such as mortgages, credit cards and business loans. As a result, consumers will borrow more,increasing consumption, a component of AD (around 65%).Similarly, businesses will borrow more, increasing investment. Both of these will serve to increase the rate of economic growth (can be shown by a shift out in the AD curve on an AD/LRAS diagram). You could also mention the positive multiplier effects that could result from this policy.

EV - I reccomend doing two paragraphs of evaluation for each policy (if you have time). For this policy, you could discuss: the differing impacts between short and long run, how monetary policy is already very expansionary and potential conflicts with other macroeconomic objectives.

Supply side - these policies aim to shift out the LRAS curve and expand the economy in a non inflationary way. An example could be increased expenditure on education and training, increasing the human capital of the workforce. Or increasing the age of compulsory education. This would increase the productivity of the labour force, increasing the demand for labour because it is more skilled, increasing consumption. This would also reduce unemployment, another of the government's main macroeconomic objectives.

EV - there are loads of great evaluation points for supply side policies. You could discuss the large time-lag (often many years) before they have any impact and the opportunity cost of the expenditure involved, especially in a time of fiscal restraint. 

Conclusion - the key to any good A-level essay is to have a strong conclusion. You need to sum up your points and then provide a balanced judgement, saying which policy you think would be the best and why. This is often a good place to mention other policies that you did not have time to consider in depth (but only briefly mention - don't go into too much detail).  So in this case, you may conclude that whilst SSPs grow the economy in a non-inflationery way and make the economy more internationally competitive, the extensive time lag associated with them makes them unsuitable for short-term demand managment. So which policy you choose depends on how quickly you want the rate of economic growth to increase (make sure you always refer the conlusion back to the origional question)

Oliver W. GCSE Maths tutor, A Level Maths tutor, GCSE Economics tutor...

10 months ago

Answered by Oliver, an A Level Economics tutor with MyTutor


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