2. Task: Analysis and Evaluation
1.Analysis: Explain why inflation rates may differ
between countries.
2.Evaluation: Evaluate the view that low
inflation should no longer be the top priority
for macroeconomic policy
3. Building an Essay Answer
Crisp & accurate
definitions
1 key point per
paragraph
+
Supporting examples /
evidence / diagrams
+evaluate as you go
Evaluative conclusions
4. Analysis: Explain why inflation rates may differ
between countries (15 marks)
• 20 minutes for this question
• Start with clear and brief
definition of inflation
• This is a question about
causation
• You may have time to develop
(briefly) only three or four
points
• Support with AD/AS analysis
• Apply with examples / evidence
5. Definition of inflation
• Sustained increase in the aggregate or general
price level of the economy.
• Weighted basket of goods and services
• UK (CPI) target inflation of 2%, +- 1%
• Quote data from the exam source / extract –
easy marks, often missed by students
8. Explaining differences in inflation
Short term causes
1.Strength of growth / “demand-pull” factors
2.Asset price inflation feeding into wealth –
domestic demand – prices
3.Changes in commodity prices (e.g. oil, gas and
food-stuffs)
4.Changes in the exchange rate (changes in
import prices)
9. Explaining differences in inflation
Medium term causes
1. Productivity (affects unit labour costs)
2. Intensity of domestic & external competition
3. Differences in inflation expectations (affects
wage demands, NAIRU et al)
4. Credibility/success of monetary and fiscal
policies in managing AD / boosting LRAS
10. Evaluate the view that low inflation
should no longer be the number
one priority for macroeconomic
policy (25 marks)
You have around 40 minutes for this
evaluation question
11. Consider using a writing frame in your revision
Knowledge Be clear what low inflation means
Price stability – low inflation of 1-4% per year
Briefly explain why inflation control has been seen as a key
macro policy objective
–Business confidence and investment spending
–Competitiveness and trade performance (X-M)
–Avoiding economic/social costs of high inflation
–Seen as a pre-condition for achieving other objectives
Analysis Point 1 Point 2 Point 3
Diagram Diagram Diagram
Application Application to Application to Application to context 3
context 1 context 2
Evaluation Evaluation 1 Evaluation 2 Concluding paragraph
with balanced conclusion
13. Is it time for a change of policy objective?
• Current economic crisis
1. Inflation less of a priority
• Plenty of spare capacity
• Businesses have little pricing power
• Workers have weak bargaining power
2. Avoiding depression and price deflation
3. Avoiding the damaging effects of high
unemployment
4. High levels of consumer & govt debt
5. Is there a case for allowing higher inflation?
14. Low inflation should no longer be the number
one priority for macroeconomic policy
Knowledge
Analysis Inflation less of a priority given the big picture.
Lots of spare capacity. Lots of competition,
little wage bargaining power for workers.
Application Growth figures
Unemployment
Evaluation
16. WEE STEPS to Evaluation
Wider context – consider the bigger picture
W and use it to weight your arguments
E
E
S
T
E
P
S
17. WEE STEPS to Evaluation
Wider context – consider the bigger picture
W and use it to weight your arguments
Efficiency – Does this achieve a more/less
E efficient allocation of resources?
E
S
T
E
P
S
18. WEE STEPS to Evaluation
Wider context – consider the bigger picture
W and use it to weight your arguments
Efficiency – Does this achieve a more/less
E efficient allocation of resources?
Equality – Do some parties benefit more/less
E than others?
S
T
E
P
S
19. WEE STEPS to Evaluation
Wider context – consider the bigger picture
W and use it to weight your arguments
Efficiency – Does this achieve a more/less
E efficient allocation of resources?
Equality – Do some parties benefit more/less
E than others?
Scope – How many people are affected by the
S point? Is it wide reaching or narrow?
T
E
P
S
20. WEE STEPS to Evaluation
Wider context – consider the bigger picture
W and use it to weight your arguments
Efficiency – Does this achieve a more/less
E efficient allocation of resources?
Equality – Do some parties benefit more/less
E than others
Scope – How many people are affected by the
S point? Is it wide reaching or narrow?
Time – How long will it last, SR or LR or both?
T
E
P
S
21. WEE STEPS to Evaluation
Wider context – consider the bigger picture
W and use it to weight your arguments
Efficiency – Does this achieve a more/less
E efficient allocation of resources?
Equality – Do some parties benefit more/less
E than others
Scope – How many people are affected by the
S point? Is it wide reaching or narrow?
Time – How long will it last, SR or LR or both?
T
Effectiveness – does it solve the issue that it
E was intended to solve?
P
S
22. WEE STEPS to Evaluation
Wider context – consider the bigger picture
W and use it to weight your arguments
Efficiency – Does this achieve a more/less
E efficient allocation of resources?
Equality – Do some parties benefit more/less
E than others
Scope – How many people are affected by the
S point? Is it wide reaching or narrow?
Time – How long will it last, SR or LR or both?
T
Effectiveness – does it solve the issue that it
E was intended to solve?
Prioritisation – which of your points is the
P strongest and why. Be specific about the
context of the question
S
23. WEE STEPS to Evaluation
Wider context – consider the bigger picture
W and use it to weight your arguments
Efficiency – Does this achieve a more/less
E efficient allocation of resources?
Equality – Do some parties benefit more/less
E than others
Scope – How many people are affected by the
S point? Is it wide reaching or narrow?
Time – How long will it last, SR or LR or both?
T
Effectiveness – does it solve the issue that it
E was intended to solve?
Prioritisation – which of your points is the
P strongest and why. Be specific about the
context of the question
Scale or Magnitude – where people are
S affected how strong is the impact?
24. Low inflation should no longer be the number
one priority for macroeconomic policy
Knowledge
Analysis Inflation less of a priority given the big picture.
Lots of spare capacity. Lots of competition,
little wage bargaining power for workers.
Application Growth figures
Unemployment
Evaluation Time scale – right now the change may be
sensible, but if we come away from an
inflation target what may happen in the long
run? Investment? Stability? We still have cost-
push inflation danger!
25. Consider using a writing frame in your revision
Knowledge
Analysis Avoiding depression and price deflation.
Deflation and its costs –Downwards demand spiral.
Increasing size of real debt, damage to savings.
Application Japanese growth 1990’s.
Diagram showing negative multiplier/accelerator.
Evaluation Wider context – How significant a threat is there of
deflation in the economy today? Confidence rising,
growth rate returning. Is there not a greater risk
that avoiding deflation will allow inflation to get out
of control. Don’t we already target deflation? We
still have cost-push inflation!
26. Consider using a writing frame in your revision
Knowledge
Analysis Target should be debt reduction. Debt means
increased tax, decreased investment, decreased
consumption. Increased cost of borrowing.
Application Government debt at 62% and predicted to rise.
Danger to credit rating. Cite Greece with debt over
110% and junk bond rating. AD & LRAS analysis
diagram showing shifts inwards in both due to lack
of investment and government spending.
Evaluation
27. Consider using a writing frame in your revision
Knowledge
Analysis Target should be debt reduction. Debt means
increased tax, decreased investment, decreased
consumption. Increased cost of borrowing.
Application Government debt at 62% and predicted to rise.
Danger to credit rating. Cite Greece with debt over
110% and junk bond rating. AD & LRAS analysis
diagram showing shifts inwards in both due to lack
of investment and government spending.
Evaluation Prioritisation – Recognition that short-term risks of
spiralling debt may outweigh cost of inflation,
inflation also reduces debt in real terms. Perhaps
medium term inflation is a better objective.
28. Good evaluation phrases to use
• However
• Hence
• Nevertheless
• Although
• It is likely that
• The tendency is
• But
• In retrospect
29. Good evaluation phrases to use
• With the benefit of
hindsight
• On the other hand
• In the short run ……..
but in the long run
• It depends upon
• The data suggest that
• According to the
extract
30. Eight wee steps to great evaluation
W Wider context
E Efficiency
E Equality
S Scope
T Time
E Effectiveness
P Prioritisation
S Scale or Magnitude