Question 22N.1.SL.TZ0.2b
| Date | November 2022 | Marks available | [Maximum mark: 15] | Reference code | 22N.1.SL.TZ0.2b |
| Level | SL | Paper | 1 | Time zone | TZ0 |
| Command term | Evaluate | Question number | b | Adapted from | N/A |
Using real-world examples, evaluate the use of fiscal policy to close a deflationary/recessionary gap.
[15]
Marks should be allocated according to the paper 1 markbands for May 2022 forward, part B.
Answers may include:
- Terminology: fiscal policy, deflationary/recessionary gap.
- Theory: explanation of how expansionary fiscal policy will increase AD moving the economy closer to its full employment level, closing a deflationary/recessionary gap.
- Diagram: AD/AS diagram to illustrate expansionary fiscal policy to close a deflationary/recessionary gap.
- Synthesis (evaluate): effectiveness depends on the shape of the aggregate supply curve and where the economy is operating; potential strengths of fiscal policy such as targeting of specific sectors and effectiveness in a deep recession; potential constraints on fiscal policy such as political pressures, time lags and sustainable debt; possible conflicts with other macroeconomic objectives, monetary and/or supply-side policies might be considered as alternatives, but the emphasis of the response should be on fiscal policy.
- Example(s): real-world examples of where governments have attempted to close a deflationary/recessionary gap using fiscal policy.
N.B. It should be noted that theory and diagrams that have already been given in part (a), and then referred to in part (b), should be rewarded.
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
This question part was also well answered by candidates. The strongest answers showed a clear understanding of a deflationary gap where the equilibrium national income is below full employment national income. Good responses would go on the say how expansionary fiscal can close a deflationary gap as a decrease in tax and an increase in government expenditure leads to a rise in aggregate demand and this was supported by an accurate AD/AS diagram. The highest-achieving responses fully evaluated the use of expansionary policy by considering its strengths and weaknesses to close a deflationary gap, such as the cost of financing the policy and this was supported by effective real-world examples.
