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Unit 9 · The macroeconomy
Unit 9 essay review checklist
Every piece of knowledge, every analysis chain and every evaluation point that the 9 Unit 9 Paper 4 essay questions in the bank (2019–2026) ask for. Tick an item only when you can explain it from memory, out loud or on paper, without looking.
清单条目使用英文，也就是考试作答所用的语言。标题、按钮和说明仍为中文。
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AO1 Knowledge
AO2 Analysis
AO3 Evaluation
Exam technique
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How to use this checklist
Cover the page and try each item out loud or on paper. Tick it only when you got it right without looking.
Items with a diagram: draw it yourself first, then open it to compare.
Use the 'Asked in' links to open the real questions that need an item, and write one of them.
Work on the items you cannot tick first. 'Hide ticked' shows only those.
Before a test, print the checklist and go through it again on paper.
9.1 The circular flow of income 9.2 Economic growth and sustainability 9.3 Employment and unemployment 9.4 Money and banking ★ Evaluation toolkit and exam technique
9.1 The circular flow of incomeChapter 41 notes → · 2 essays set on this section ·
Builds on: Unit 4 · 4.2 Introduction to the circular flow of income · Unit 4 · 4.3 Aggregate demand and aggregate supply analysis · Unit 5 · 5.2 Fiscal policy
Two essays are set on 9.1 directly: whether the multiplier means a government need not spend the full amount of a negative output gap, and whether knowing the multiplier and the accelerator lets it close a deflationary gap. The same tools carry the analysis in the Unit 9 essays on growth and budget deficits, and in most Unit 10 essays on fiscal and monetary policy, where you will find them cited.
The 2 past-paper questions on this section
9708/41/M/J/26 Due to the multiplier process, governments conducting an expansionary fiscal policy do not need to increase spending by the full amount of the negative output gap to bring the output of the economy to its full employment level. Evaluate this statement. [20] 9708/44/M/J/26 Knowledge of both the multiplier and the accelerator enable a government to implement effective fiscal policies to close a deflationary gap. Evaluate this statement. [20] Knowledge and understanding (AO1)
I can define the multiplier and state its formula for a closed economy without a government, a closed economy with a government, and an open economy with a government. I can calculate the average and marginal propensities to consume, save and import and the average and marginal rates of tax, and say which of them the multiplier uses. I can calculate the final change in national income from a change in an injection, and the injection needed to close a given gap between equilibrium and full employment national income. I can draw the injections and withdrawals diagram, with both plotted against national income, and mark the equilibrium and the full employment level of national income. I can draw the Keynesian 45° diagram, labelling the aggregate expenditure line and equilibrium national income, and explain why an aggregate expenditure line is not an aggregate demand curve. I can write the consumption function and the savings function, and distinguish autonomous from induced consumption and saving. I can distinguish autonomous from induced investment, and show how a change in each appears on the 45° diagram. I can define the accelerator and the capital-output ratio. I can define inflationary and deflationary gaps, show each on the 45° diagram, and say how they relate to positive and negative output gaps. I can name the main determinants of consumption, investment, government spending and net exports. I can state the formula for the accelerator and define each of its terms. Analysis: the chains (AO2)
I can explain, with an AD/AS diagram, how an injection raises national income by a multiple of itself, round by round, and why the process comes to an end. Show the diagram I can explain why a higher marginal rate of tax or marginal propensity to import makes the multiplier smaller, and so why it is smaller in an open economy with a government than in a closed one. I can explain, using the injections and withdrawals diagram, what happens to national income, employment, the price level and the current account when injections exceed withdrawals, and when they fall short. I can explain, using the 45° diagram, how a rise in autonomous spending shifts the aggregate expenditure line and raises equilibrium national income by a multiple of the rise. I can explain, on an injections and withdrawals diagram, the chain from a fall in the rate of interest to investment and saving, and on to national income and employment. I can explain, with a numerical example, why induced investment depends on the change in output rather than its level, so that slower growth can cut investment while output is still rising. I can explain how the multiplier and the accelerator feed each other, turning a rise in spending into a larger rise in investment and national income. I can explain how a deflationary gap leaves national income in equilibrium below full employment with cyclical unemployment, and why Keynesians argue it can last. I can explain how an inflationary gap leads to demand-pull inflation, and how cutting government spending or raising taxes can close it. I can explain why a rise in saving reduces national income, and why total saving may not rise as a result. I can explain how a change in exports or imports changes national income through the multiplier, and why the marginal propensity to import matters.
9.2 Economic growth and sustainabilityChapter 42 notes → · 4 essays set on this section ·
Builds on: Unit 4 · 4.1 National income statistics · Unit 4 · 4.3 Aggregate demand and aggregate supply analysis · Unit 4 · 4.4 Economic growth · Unit 5 · 5.2 Fiscal policy · Unit 5 · 5.4 Supply-side policy
One essay filed here, on Mexico's statistics, is about measuring the standard of living rather than growth itself: its items come last in each group.
The 4 past-paper questions on this section
9708/44/M/J/25 Evaluate how a country might increase its potential economic growth. [20] 9708/41/O/N/25 Economic growth can only occur when an economy is below full employment. Evaluate this statement. [20] 9708/44/O/N/25 Evaluate whether an increase in a government's budget deficit will always lead to economic growth. [20] 9708/42/O/N/24 The table below contains some key economic data for Mexico in 2020.Gross National Income (GNI)18.5 billion pesosnominal wages+2.8%disposable income+1.2%unemployment rate4.2%population growth rate1.1%inflation rate3.4%Source: knoema.com Evaluate the use of these statistics in assessing the standard of living in Mexico in 2020. [20] Knowledge and understanding (AO1) Analysis: the chains (AO2)
I can explain, with a diagram, why a rise in AD produces actual growth when there is a negative output gap but mainly a higher price level when the economy is at full employment. Show the diagram I can explain, with a diagram, how potential growth lets output rise even in an economy at full employment, and why the extra capacity is used only if AD rises to match it. Show the diagram I can explain how a positive output gap arises, why it cannot last, and why it brings demand-pull inflation. Show the diagram I can explain at least three causes of the business cycle, including the interaction of the multiplier and the accelerator and a supply-side shock. I can explain how automatic stabilisers reduce the swings of the business cycle, and why they widen the budget deficit in a recession without any decision by the government. I can explain, using the circular flow and the multiplier, the chain from an increase in the budget deficit to AD, real output and employment. I can explain why deficit spending on education, infrastructure or investment can raise potential growth as well as AD, while most transfer payments raise only AD. I can explain, with a diagram, the chain from at least two supply-side policies to potential growth, each working through a different factor of production. Show the diagram I can explain the chain from foreign direct investment by multinational companies to a country's potential growth, through at least two channels. I can explain how economic growth can leave some groups behind, and how at least three policies could make growth more inclusive. I can explain how growth in the primary, secondary and tertiary sectors, and in consumption, can damage the environment and add to climate change. I can explain how using a natural resource now can raise output, exports and tax revenue, and how conserving it can support income in the future. I can explain how a polluter-pays tax and tradable pollution permits each reduce the environmental damage of growth, and how subsidies, regulation and information can also help. I can explain how each statistic in a data table points to a rise or a fall in the material standard of living, reading nominal changes against the inflation rate. Evaluation (AO3)
I can judge whether economic growth needs spare capacity, using the difference between actual and potential growth and the chance of output above potential for a time, and decide how far the claim holds. I can judge whether consumption, investment or net exports can rise at full employment, and whether real output or only the price level then rises. I can judge whether a larger budget deficit will always lead to growth, using the output gap, the size of the multiplier, the expectations of households and firms, and how the deficit is financed. I can judge whether a larger deficit raises growth only in the short run, or in the long run too, through accelerator-induced investment and spending that adds to capacity. I can judge whether a rise in the budget deficit causes growth or is caused by recession, separating a cyclical rise from a discretionary one. I can give at least four constraints on policies to raise potential growth, such as the cost of government borrowing, time lags, shortages of factors of production and political resistance. I can judge the side effects of policies to raise potential growth, such as privatised monopolies, the exploitation of labour and damage to the environment. I can judge which policy would raise potential growth most for a particular economy, comparing speed, cost and certainty, rather than only naming a winner. I can judge whether a country's growth is sustainable, weighing the extra output against the depletion of resources, pollution and climate change. I can judge policies to limit the environmental damage of growth, using how hard the damage is to value, their cost, who bears it, and whether polluting production moves abroad. I can judge how far a set of statistics measures the standard of living: totals or per head, money or real values, the period covered, and averages that hide the distribution. I can judge what income and employment statistics leave out of the standard of living, and name composite measures, such as the HDI, MEW and MPI, that reach more of it. I can reach a judgement on what a set of statistics shows about living standards, saying what can be concluded firmly and what further data would be needed.
9.3 Employment and unemploymentChapter 43 notes → · 1 essays set on this section ·
Builds on: Unit 4 · 4.5 Unemployment · Unit 5 · 5.2 Fiscal policy · Unit 5 · 5.3 Monetary policy · Unit 5 · 5.4 Supply-side policy
The 1 past-paper questions on this section
9708/42/M/J/19 Cyclical and structural unemployment are the most common types of unemployment. Explain the causes of these types of unemployment and assess the effectiveness of government policies to reduce them. [25] Knowledge and understanding (AO1) Analysis: the chains (AO2) Evaluation (AO3)
I can judge how much of a country's unemployment is cyclical and how much structural, using vacancies, the length of spells and where it is concentrated, since the right policy depends on it. I can give at least three reasons why expansionary fiscal or monetary policy may not reduce cyclical unemployment much, such as low confidence, labour-saving investment and time lags. I can judge whether reducing unemployment should come first, weighing its costs in lost output and hardship against what expanding AD costs in inflation, the current account and government debt. I can give at least three reasons why supply-side policies against structural unemployment may be slow or fail, such as training in skills that firms do not want. I can judge whether cutting unemployment benefit or the minimum wage reduces unemployment or mainly reduces spending, depending on whether suitable vacancies exist. I can use the disagreement between Keynesians and new classical economists over the natural rate to judge whether demand management can reduce unemployment in the long run. I can judge whether the natural rate is fixed, or whether a long recession can raise it and a sustained recovery lower it. I can judge whether a low unemployment rate shows a healthy labour market, allowing for underemployment, insecure gig and informal work, and discouraged workers.
9.4 Money and bankingChapter 44 notes → · 2 essays set on this section ·
Builds on: Unit 4 · 4.6 Price stability · Unit 5 · 5.3 Monetary policy
The 2 past-paper questions on this section
9708/42/M/J/26 Evaluate whether the quantity theory of money is a satisfactory explanation of the cause of inflation. [20] 9708/43/O/N/24 Central banks can control the money supply. An increase in the money supply will cause inflation, therefore central banks can control inflation. Evaluate this statement. [20] Knowledge and understanding (AO1) Analysis: the chains (AO2)
I can explain how a commercial bank creates credit, and how a new deposit of liquid assets can become a multiple increase in bank deposits. I can explain the chain from an open market sale of government securities to the money supply, and the reverse for a purchase. I can explain, with a bond market diagram, the chain from quantitative easing to long-term interest rates, the money supply and AD. Show the diagram I can explain why a budget deficit raises the money supply when it is financed by the commercial banks or the central bank, but not when it is financed by the non-bank private sector. I can explain how a net inflow of currency through the balance of payments increases the money supply. I can explain the monetarist chain from a rise in the money supply to the price level, using the quantity theory and its assumptions about velocity and output. I can explain, with a money market diagram, the Keynesian transmission mechanism from a rise in the money supply to the rate of interest, AD, real output and the price level. Show the diagrams Quantity of Money
Interest Rate Mᴅ Mˢ i* M* Money Market Equilibrium · Open the diagram sheet ↓ Base rate (CB)
↓ Commercial lending rates
↑ Consum. credit, wealth eff.
↑ Invest. cheaper finance
↓ Ex. rate ↑(X−M)
AD ↑
↑ Real GDP and/or ↑ Price Level Monetary Transmission Mechanism · Open the diagram sheet I can explain why the price of a bond and its rate of interest move in opposite directions, and how this drives the speculative demand for money. I can explain, with a diagram, why in a liquidity trap an increase in the money supply fails to lower the rate of interest. Show the diagram I can explain, with a loanable funds diagram, how a rise in saving lowers the rate of interest and how more government borrowing raises it. Show the diagram I can explain how a rise in the central bank's rate of interest can slow the growth of the money supply as well as reduce AD and inflation. I can explain how a change in the demand for money to hold, for the transactions, precautionary or speculative motive, or because inflation is expected, changes the velocity of circulation, and what that does to the link between the money supply and the price level. Evaluation (AO3)
I can explain why the money supply is hard to define and measure, when different assets perform the functions of money to different degrees, and why that weakens a central bank's control. I can give at least three reasons why a central bank cannot fully control the money supply, such as banks' profit motive and inventiveness, the demand for loans and currency flows. I can judge how firmly a change in the rate of interest moves the money supply, since bank lending, deposits and currency flows can respond in unexpected ways. I can judge whether a rise in the money supply always causes inflation, using whether velocity and output stay constant and how much spare capacity the economy has. I can judge whether monetary policy can control inflation whatever its cause, comparing it with contractionary fiscal policy for demand-pull inflation and supply-side policy for cost-push inflation. I can judge the evidence on quantitative easing: whether the extra bank reserves became lending and spending, and whether it raised asset prices more than spending on goods and services. I can judge whether the liquidity preference theory or the loanable funds theory better explains the rate of interest, and when each fits best. I can judge whether the Fisher equation can show that money causes inflation, given that it holds by definition, and whether the causation could run from rising prices to the money supply instead. I can compare the quantity theory with demand-pull and cost-push explanations of inflation, and judge which best explains a particular inflation, such as one that began with a rise in import prices. I can judge what the quantity theory leaves out in an open economy, where a rise in the money supply can lower the exchange rate, raising import prices and, where the Marshall-Lerner condition holds, net exports and output.
Evaluation toolkit and exam technique
These work in every section. In a Paper 4 essay the six AO3 marks go to evaluation that is developed and applied to the question and ends in a justified judgement, and most of it comes from one of these moves.
Evaluation (AO3)
Spare capacity: I can judge any change in AD, or any policy, by where the economy starts: a large negative output gap, close to full employment, or a positive output gap. Schools of thought: I can set the Keynesian view against the monetarist or new classical view, and say which assumption, such as sticky wages, constant velocity or a vertical LRAS, decides between them. Time: I can separate short-run from long-run effects, and allow for the lags before a problem is recognised, a policy is put in place and households and firms respond. Size: I can judge whether a change is large enough to matter, using the size of the multiplier and the accelerator and the share of the economy it affects. Responsiveness: I can judge how strongly households, firms and banks will react, using confidence, expectations of inflation and future taxes, and how sensitive their spending and lending are to interest rates. Cause first: I can judge a policy by whether it matches the cause of the problem: cyclical or structural unemployment, demand-pull or cost-push inflation, too little demand or too little capacity. Side effects: I can show how pursuing one aim can harm another, such as growth against inflation, the current account, the national debt or the environment, and judge which matters more for this economy now. Measurement: I can question the figures a judgement rests on, since the output gap, the natural rate, the money supply and the standard of living are all hard to measure. Type of economy: I can adapt a judgement to the economy in the question: high- or low-income, open or closed, in a monetary union, carrying a large debt, or with interest rates already near zero. Models: I can use a model's assumptions as evaluation, such as a price level fixed until full employment or a constant velocity of circulation, and say what changes when one fails. Always, only, therefore: I can challenge an absolute word in the question with one counter-example, then decide how far the claim holds rather than simply rejecting it. Exam technique
Read the question: I can pick out the command word and every key term, such as potential growth, budget deficit, standard of living or money supply, define each, and keep the whole essay on that exact question. Two tables: I can plan for Table A, 14 marks for knowledge and developed analysis with accurate diagrams, and Table B, 6 marks for developed evaluation and a justified judgement, giving the evaluation real space. Develop, don't list: I can take two or three points through full chains to the variable the question names, because the top level of Table A rewards developed, detailed analysis rather than a long list. Diagrams: I can draw every diagram large and fully labelled and use it in the argument, referring to its labels; where a question asks for a diagram, leaving it out can cap the mark. Develop the evaluation: I can take each evaluation point beyond 'it depends', saying what the outcome depends on, which way it cuts in this case and why. Judgement: I can end with a conclusion that answers the exact question, whether it asks 'always', 'how' or 'evaluate this statement', justified by the evaluation and saying what would change it. Chains of claims: when a statement links claims with 'therefore' or 'because', I can test each claim separately and judge which is weaker, since the conclusion fails if either does. Both halves: when a question asks for an explanation and then an assessment, such as the causes of unemployment and the policies to reduce them, I can give each half its weight.
Model chains and evaluation points for each item are being added. Until then, check yourself against the chapter notes and the mark scheme for each question.