Practise 64 real questions on Government macroeconomic intervention from 2021 to 2026. See the answer and explanation as soon as you answer.
Government macroeconomic intervention is one of the 11 main topics in our A Level Economics (Cambridge (CAIE) 9708) question bank, and about 7% of its real questions come from it. Tayyari Karo has 64 real questions on this topic from 2021 to 2026, from Paper 1, Paper 2, Paper 3, Paper 4; 46 are multiple choice and marked instantly, and the rest are structured questions with a model answer. By difficulty: 31 medium, 26 hard, 7 easy.
Work through the questions below, then open the explanation for each one. Redo the ones you missed a few days later.
These are real past-paper questions. Think of your answer first, then open the explanation.
Some countries experienced a recent decline in investment spending. What might be done to stop such a decline?
Answer: B. lower interest rates
Lower interest rates reduce the cost of borrowing and raise the return on investment.
A government uses expansionary monetary policy over a three-year period. Which combination identifies the likely impact of such a policy?
Answer: C. real GDP rising; price level rising; unemployment falling
Expansionary monetary policy (e.g. lower interest rates) raises aggregate demand, increasing real GDP, reducing unemployment, but also putting upward pressure on the price level.
The government of a country reduces its budget deficit by cutting government spending. At the same time, the central bank raises interest rates. When might this combination of policies be used? (unemployment rate / inflation rate)
Answer: B. low / high
Cutting government spending and raising interest rates are both contractionary/deflationary policies, used to reduce aggregate demand when inflation is high, even though unemployment is low (an overheating economy).
Which combination of fiscal and monetary policies would certainly be expansionary?
| | government spending | taxes | money supply |
|---|---|---|---|
| A | decrease | decrease | decrease |
| B | decrease | increase | decrease |
| C | increase | decrease | increase |
| D | increase | increase | increase |
Answer: C. Combination C
Rising government spending, falling taxes and a rising money supply all work in the same, expansionary direction, unambiguously raising aggregate demand; the other combinations mix expansionary and contractionary elements.
Which government policy to counter the effects of income inequality is correctly matched with one of its advantages and one of its disadvantages? (policy / advantage / disadvantage)
Answer: A. food subsidies for the poor / targets those in need / high administrative costs
Food subsidies can be targeted specifically at low-income households in need, but administering means-tested or targeted schemes (verifying eligibility, distribution) tends to be costly. The other combinations pair a policy with an advantage or disadvantage that does not correctly/logically match (e.g. a minimum wage doesn't inherently raise the budget deficit; free child care would not typically create a work disincentive; universal benefits paid to everyone do save on means-testing bureaucracy, but they would not be expected to reduce labour mobility).
A government announces its intention to reduce the level of transfer payments in the economy. Which statement made by the government is consistent with this intention?
Answer: A. There need to be more incentives for unemployed workers to seek jobs.
Transfer payments (e.g. unemployment benefits) are payments made without a corresponding contribution to output. Encouraging unemployed workers into jobs, rather than remaining on benefits, is consistent with wanting to reduce transfer payments.
Japan inflation case study (see Question 1). (b) Apart from interest rates, state two other tools of monetary policy that could be used in Japan to control inflation. [2]
Any two for 1 mark each: money supply; credit regulations; quantitative tightening (accepted); exchange rates.
Monetary policy tools other than interest rates include controlling the money supply, credit regulations and exchange rate policy.
Assess the potential benefits and limitations of using monetary policy to control inflation in a country such as Argentina. [6]
Up to 4 marks for explanation/analysis: potential benefits — raising interest rates can reduce aggregate demand and thereby reduce inflation (up to 3 marks); potential limitations — the difficulty of knowing what the appropriate interest rate should be, and the possibility that demand could be relatively interest-inelastic, limiting the policy's effectiveness (up to 3 marks). Up to 2 marks for evaluation: a relevant evaluation weighing up the benefits and limitations of monetary policy in this context (1 mark), and a conclusion on the likely overall effect (1 mark).
Marking split: max 4 marks explanation/analysis + max 2 marks evaluation = 6 marks.
| Session | Paper 1 | Paper 2 | Paper 3 | Paper 4 |
|---|---|---|---|---|
| May/June 2026 | 6 | 2 | – | – |
| May/June 2025 | 5 | 4 | – | – |
| October/November 2025 | 5 | 1 | – | – |
| May/June 2024 | 4 | 2 | – | – |
| October/November 2024 | 4 | 2 | – | – |
| May/June 2023 | 2 | 1 | – | – |
| October/November 2023 | 3 | 1 | 8 | 2 |
| May/June 2022 | 3 | 1 | – | – |
| October/November 2022 | 2 | 1 | – | – |
| May/June 2021 | 2 | 1 | – | – |
| October/November 2021 | 2 | – | – | – |
64 real A Level Economics (9708) questions on Government macroeconomic intervention from 2021 to 2026, from Paper 1, Paper 2, Paper 3, Paper 4. Each one shows the year, session and paper it came from.
Yes. Every question shows the correct answer and a short explanation the moment you answer.
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