Macroeconomic Policies
H1 Economics - syllabus 8843, 2026
Explain and evaluate fiscal, monetary (including Singapore's exchange rate policy) and supply-side policies, and how governments handle conflicts between objectives.
- Match the policy to the problem
Choose a policy by first finding the cause of the problem: demand, supply or structural.
- Fiscal policy
Raising government spending or cutting taxes increases AD; the reverse reduces it.
- Taxes and transfers for inclusive growth
Progressive taxes and targeted transfers reduce inequality and help lower-income households share in growth.
- Limits of fiscal policy
Fiscal policy can be weakened by leakages, time lags and a lack of spare capacity.
- Budget balance and fiscal sustainability
A deficit this year is not the whole story; what matters is whether the government can keep meeting its commitments.
- Monetary policy through interest rates
In most economies, central banks cut interest rates to raise spending and raise them to curb inflation.
- Limits of interest rate policy
Cheaper borrowing does little when firms expect weak sales or banks will not lend.
- How the exchange rate affects the economy
A stronger currency makes imports cheaper and exports dearer, lowering both inflation and AD.
- Singapore's exchange rate policy
MAS manages the Singapore dollar against a basket of currencies within a policy band to keep prices stable.
- Supply-side policies
Supply-side policies raise the quantity, quality or mobility of resources, shifting AS right.
- How effective are supply-side policies?
Supply-side policies tackle the root causes of low growth, but they are slow, costly and uncertain.
- Combining policies
Use different tools for different problems: targeted help now, demand support if there is spare capacity, and supply-side policies for the long run.
- Case study practice: fighting inflation with interest rates
A whole H1 case study: 40 marks, about 90 minutes in the exam. Answer every part, then compare with the suggested answers.
What you will be able to do
I can explain why governments use policy to raise living standards.
Syllabus 8843, 3.2.3(a). Macroeconomic Policies: Macroeconomic policy decisions undertaken by governments to achieve macroeconomic objectives in relation to living standards
Taught in Match the policy to the problem, Combining policies, Case study practice: fighting inflation with interest rates
I can explain fiscal, monetary and supply-side policy and judge how well each works.
Syllabus 8843, 3.2.3(b). Macroeconomic Policies: Policy measures and their effectiveness in achieving macroeconomic objectives:; Fiscal policy - How discretionary fiscal policy can influence the level of economic activities and living standards through government spending and taxation; Supply-side policies - How supply-side policies can improve quantity, quality and mobility of factors of production to increase the productive capacity of an economy and hence affect living standards; Monetary policy - How monetary policy can influence the level of economic activities and living standards through the management of exchange rates (case of Singapore) and interest rates
Taught in Fiscal policy, Taxes and transfers for inclusive growth, Limits of fiscal policy, Budget balance and fiscal sustainability, Monetary policy through interest rates, Limits of interest rate policy, How the exchange rate affects the economy, Singapore's exchange rate policy, Supply-side policies, How effective are supply-side policies?, Case study practice: fighting inflation with interest rates
Original teaching notes