Government Macroeconomic Intervention Exam Questions
Five past-paper questions are below. Answer on the page: each one is marked the moment you pick, the correct option is shown whether or not you found it, and the full explanation opens either way.
Cambridge IGCSEPaper 1 MCQsFree account
Government Macroeconomic Intervention: five questions 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
Why might a government decide to subsidise a high-cost steel industry?
Answer: D.
Subsidising a HIGH-COST industry cannot be justified on efficiency grounds, because the subsidy keeps resources in an activity where the country is comparatively poor, so the reason has to be social. Protecting jobs in areas where unemployment is already rising and workers have few alternatives is that reason, and it is the standard political case for propping up a declining industry. Each of the other three is an argument AGAINST subsidising rather than for it. A says cheap imports are already improving the balance of payments, so the external case for supporting domestic steel falls away; B says growth is coming from other industries, so the resources released would be absorbed elsewhere; and C says redundant workers can easily retrain, which removes the very hardship that would justify the intervention.
Question 2
What is an example of a fiscal policy measure?
Answer: C.
Fiscal policy is taxation and government spending, so cutting corporation tax is the fiscal measure. Sort the distractors by family and the answer is immediate: setting a lower interest rate is monetary, reducing trade union power is supply-side, and managing the exchange rate is a currency intervention. Identifying the family before reading the detail is the quickest route through any policy question.
Question 3
A government retrains unemployed industrial workers to increase employment opportunities. The policy may have adverse effects on other government macroeconomic aims. What illustrates this situation?
Answer: B.
The question asks for an ADVERSE effect on another macroeconomic aim, so three of the options can be eliminated simply because they describe benefits. Retraining raises employment and therefore incomes, and higher household spending can pull demand above what the economy can supply, causing demand-pull inflation, a direct conflict with the aim of stable prices. This is the classic trade-off between full employment and low inflation, and recognising which pair of aims is in tension is what the question is really testing.
Question 4
What is not likely to be a conflict between government macroeconomic aims?
Answer: C.
The question asks which is NOT likely to be a conflict, so you are looking for the pair that can be achieved together. Redistributing income towards poorer households tends to raise total spending, because they spend a larger share of any extra income, which supports employment rather than working against it. The other three are the standard conflicts: growth pulls in imports and can worsen the balance of payments, and full employment raises wage pressure and therefore threatens stable prices.
Question 5
In a country, there is an increase in the rate of interest to prevent inflation. Which type of macroeconomic policy is this?
Answer: B.
The interest rate is the central bank's instrument, so changing it is MONETARY policy by definition. Sorting instruments by family answers this instantly: fiscal policy is taxation and government spending, supply-side policy raises productive capacity, and trade policy concerns tariffs and quotas. The aim here is anti-inflationary, but the aim does not determine the family, the instrument does.
These questions are drawn from past Cambridge IGCSE 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.
These are the errors that cost marks on government macroeconomic intervention, taken from our own topic notes. Read them before you practise and you will recognise the traps in the questions.
Listing the aims without explaining why any of them matter.
Saying full employment means zero unemployment.
Claiming a government can achieve every aim at once.
Describing a conflict without explaining the mechanism connecting the two.
Forgetting the balance of payments, which is the aim most often left out.