UNIT 9 The Macroeconomy

UNIT 9 The macroeconomy
Data response
1 Changes in the economy of the Netherlands
The Netherlands is a high-income country. It has one of the largest economies of the world and in 2019 was the seventh
largest exporter. In recent years, its economy has experienced a double dip recession. Between 2008 and 2009, the
country’s output fell as a result of the global financial crisis. The Netherlands suffered from a decline in global demand,
problems with its own banks and a loss in consumer and business confidence. After a short-lived recovery, the economy
went back into recession between 2012 and 2013.
This time, a fall in consumer confidence was combined with contractionary fiscal policy measures. The government raised
VAT and decreased its spending. Between 2013 and 2019, the economy picked up. Each year more jobs were created
and unemployment fell each year from 9% in 2013 to 4.2% in 2019. People from a migrant background continued to be
more likely to be unemployed than those born in the country. The proportion of permanent jobs declined with more
workers on flexible contracts. Wage growth was modest, averaging 1.8%. The Netherlands has the highest rate of part-
time work in Europe for both men and women. In the period 2013 and 2018, this contributed to a growing wage inequality
in the country. Productivity growth, despite a reduction in training, has been good.
The country has had a current account surplus for decades, largely as a result of positive net exports, but its economic
growth between 2013 and 2019 was driven largely by increases in domestic demand. Investment contributed 21% of the
country’s aggregate demand, but it was consumption that was the largest component and increased the most. The
government had a budget surplus from 2013 and 2019. In 2019, the government increased the rate of VAT. This time, it
increased its spending. Over the period 2013 – 2019, life expectancy in the Netherlands increased from 81.3 years to 82.5
years and GDP per head rose, by a relatively small amount, from $52 190 to $52 600. Over this period, the educational
qualifications of the population rose with a greater percentage of students continuing on to higher education.
a What evidence is there in the material that aggregate demand increased in the Netherlands between 2012 and 2019. [4]
b Explain why the Netherlands experienced a recession in 2013. [4]
c Consider whether there is conflicting evidence that the Netherlands experienced inclusive growth between 2013 and
2019. [5]
d Discuss how an increase in an indirect tax can affect the inflation rate. [7]
Essays
2 ‘Most countries have a similar multiplier.’ Assess this statement. [20]
Knowledge and understanding
Analysis points
Evaluation points
3 Assess the extent to which business cycles are caused by changes in investment. [20]
Analysis points
Evaluation points
Marking scheme
UNIT 9 The macroeconomy

Data response
1 a Learners’ answers might include:
• GDP increased.
• consumption increased.
• investment increased.
• net exports increased.
b Learners’ answers might include:

• fall in global demand; reduced demand for exports; lower aggregate demand.
• problems with banks – reduced lending and reduced investment.
• reduced consumer confidence – lower consumption which encouraged firms to reduce output.
• reduced business confidence – lower investment – worn out machines not replaced – lower output.
c Learners’ answers might include:

• inclusive growth is increases in real GDP/GNI that benefit everyone in the country.
• inclusive growth can be judged by, for example, whether everyone experiences a growth in income,
improvement in education and improvement in healthcare.
Analysis points
• GDP per head increased, enabling people to enjoy more goods and services.
• life expectancy rose – suggesting better healthcare.
• higher proportion of students went on to tertiary education and gained more qualifications – should later benefit
from higher income, better healthcare, better housing and more choices.
• unemployment declined – more of the population able to earn an income.
But
• wage inequality increased – some workers would have benefited more than others.
• migrant workers were more likely to be unemployed.
• fewer workers on permanent contracts – may find it difficult to buy a house and plan ahead.
• more people in part-time work – may not be from choice – likely to lower incomes for some.
Evaluation points
• mixed evidence – on three key indicators of key indicators of living standards (income per head, life expectancy
and education) the material would suggest people are better off but there is also evidence that not all benefited.
• some of the information is only an average – for example, GDP per head increased but some people will have
experienced a fall in income, life expectancy rose but some people may have had a shorter life expectancy.
d Learners’ answers might include:

• definition of an indirect tax.
• identification of who is responsible for paying an indirect tax and how some may be passed on to the consumer.
• definition of inflation.
• identification of the key causes of inflation.
Analysis points
• how an increase in indirect tax can influence prices, consumption and aggregate demand.
• inclusion of a diagram showing how a decrease in aggregate demand could affect the price level.
• how an increase in indirect taxes can affect costs of production and wage claims, and so short-run aggregate
supply.
• a diagram to show how a decrease in SRAS could affect the price level.
Evaluation points
• whether the effect on AD is likely to be greater or less than on AD.
• the difference between the effects on SRAS and LRAS.
• the outcome will be influenced by which products the indirect tax is imposed on.
• there are other influences on consumption and costs.
ESSAYS
2 ‘Most countries have a similar multiplier.’ Assess this statement. [20]
2 Learners’ answers might include:

• definition of the multiplier.
• how the multiplier can be calculated.
• significance of the size of the marginal propensity to withdraw.
Analysis points
• similarity in ways of calculating the multiplier.
• influences on mps in different countries.
• influences on mrt in different countries.
• influences on mpm in different countries.
Evaluation points
• all countries have the same formula for the multiplier but the size of the withdrawals vary, and so the size of the
multiplier varies.
• why mps is likely to be different in high-income and low-income countries.
• why mpm is likely to be different the more open countries’ economies are.
• why mrt can vary between countries.
Learners’ answers might include:
3 Assess the extent to which business cycles are caused by changes in investment. [20]
3.Knowledge and understanding

• definition of the business cycle.
• phases of the business cycle.
• definition of investment.
• link between investment and AD and AS.
Analysis points
• investment causes national income to change by a multiple amount.
• changes in national income can cause greater percentage change in demand for capital goods.
This is explained by the accelerator theory.
• influences on investment.
• how investment is likely to change over the phases of the business cycle.
• advances in technology can result in bursts of investment.
Evaluation points
• investment is the most volatile component of aggregate demand.
• through the interaction of the multiplier and accelerator effects, changes in investment can have a
significant impact on economic activity.
• investment is strongly linked to business confidence and so can reinforce upturns and downturns.
• other possible causes of business cycles.
4 Assess how commercial banks can influence a country’s macroeconomic performance. [20]
4 Learners’ answers might include:
• function of commercial banks.
• banks have three main objectives: profitability, liquidity and security.
• key indicators of macroeconomic performance.
Analysis points
• how commercial banks can encourage saving and the effects of saving on the macroeconomy.
• the effects of bank lending on economic growth, unemployment and inflation.
• how commercial banks can influence the balance of payments.
• the ethical policies commercial banks can follow.
Evaluation points
• key role of commercial banks in implementing monetary policy.
• how the size and sophistication of the commercial banking sector varies between high-income and low-income
countries.
• influence of commercial banks’ aims on how they can impact macroeconomic performance.

UNIT 9 The Macroeconomy

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UNIT 9 The Macroeconomy

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UNIT 9 The macroeconomy

b Explain why the Netherlands experienced a recession in 2013. [4]

UNIT 9 The macroeconomy

b Learners’ answers might include:

c Learners’ answers might include:

d Learners’ answers might include:

2 ‘Most countries have a similar multiplier.’ Assess this statement. [20]

2 Learners’ answers might include:

3.Knowledge and understanding

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