Question 22N.1.HL.TZ0.2
| Date | November 2022 | Marks available | [Maximum mark: 25] | Reference code | 22N.1.HL.TZ0.2 |
| Level | HL | Paper | 1 | Time zone | TZ0 |
| Command term | Discuss, Explain | Question number | 2 | Adapted from | N/A |
Explain why a sustainable level of government (national) debt is an important macroeconomic objective.
[10]
Marks should be allocated according to the paper 1 markbands for May 2022 forward, part A.
Answers may include:
- Terminology: Government (national) debt, sustainable government (national) debt.
- Diagrams: Candidates might use an AD/AS diagram to illustrate changes in government spending, but the question can be answered without the use of a diagram.
- Theory: An explanation of how government debt might be measured as a percentage of GDP. Candidates may also explain how a budget deficit is related to government (national) debt. Candidates might explain sustainable debt in terms of servicing costs, credit ratings and how future taxation and government spending might be impacted by debt and whether these are sustainable.
A significant number of candidates did not know what the national debt was. It was confused with a budget deficit in many cases and with a trade deficit in extreme cases. The highest-achieving responses were able to explain the link between budget deficits and national debt. From that point they could go on to explain why a sustainable national debt is an important macroeconomic objective, for example, in order to avoid excessive impacts on future spending plans by governments and to keep down the costs of debt servicing.
Using real-world examples, discuss the potential trade-off between unemployment and inflation.
[15]
Marks should be allocated according to the paper 1 markbands for May 2022 forward, part B.
Answers may include:
- Terminology: Unemployment, inflation.
- Diagrams: AD/AS diagrams, Phillips curve diagram.
- Theory: An explanation of the potential trade-off between unemployment and inflation in the long run and in the short run.
- Synthesis (discuss): Discussion of the relationship between inflation and unemployment in the short run and in the long run. A consideration of the trade-off revealed by the short-run Phillips curve and the lack of a trade-off indicated by the long run Phillips curve in which the economy is assumed to be operating at the natural rate of unemployment.
- Example(s): A relevant real-world example(s) in which a potential trade-off between unemployment and inflation is claimed to exist.
This question offered candidates the opportunity to take an expansive approach in their response. The question leans towards use of the Phillips curve, but some candidates opted to approach the question using only AS and AD analysis, using a stagflation versus demand-pull inflation approach. This was done well in some cases but a response that developed the long-run and short-run Phillips curve arguments was likely to be more substantial and obtain higher marks. The use of real-world examples was very good in some cases but many candidates find it a challenge to apply them to macroeconomic responses effectively.