Effectiveness of Policy Options: one question to try now
Real past-paper questions, the answer key from the mark scheme, and the explanation that goes with it. No account needed to answer them.
Question 1
To stimulate economic growth the government increases the size of its budget deficit and funds this by increasing the money supply. What is most likely to reduce the effectiveness of these measures in achieving their aim?
Answer: B.
What this practice covers
These questions are drawn from past CIE 9708 papers. You answer, you find out immediately whether you were right, and you get the reasoning for the correct option and for each distractor. Wrong answers go to a mistakes locker so you can come back to exactly those.
Practice is free. You need an account only so your progress and your mistakes are still there next time.
What examiners see students get wrong here
These are the errors that cost marks on effectiveness of policy options, taken from our own topic notes. Read them before you practise and you will recognise the traps in the questions.
- Confusing the deficit with the debt, or a flow with a stock.
- Ignoring the denominator, and assuming any deficit raises the debt ratio.
- Treating all crowding out as automatic, without reference to the output gap.
- Failing to distinguish cyclical from structural deficits before recommending cuts.
- Asserting that debt burdens future generations without distinguishing internal from external debt, or consumption from investment.
- Forgetting that automatic stabilisers operate without any decision, and describing them as discretionary.
- Omitting time lags.
Revise it first
If any of the above is unfamiliar, work through the notes before practising: Effectiveness of Policy Options revision notes.