Macroeconomic Policies
H2 Economics - syllabus 9570, 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.
- Pegs, reserves and capital flight
A country that fixes its exchange rate must buy its own currency with reserves when money flows out, and reserves can run out.
- 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.
- Depreciation and the trade balance
A depreciation improves the trade balance only if demand for exports and imports is price elastic enough.
- Conflicts between objectives
Policies that help one objective can hurt another, so governments must choose priorities.
- Model essay (a): two tools against inflation
A top 10-mark answer, written in about 20 minutes, explains both tools in full chains, uses a labelled diagram and ties each tool to Singapore.
- Model essay (b): are supply-side policies best?
A top 15-mark answer, written in about 30 minutes, argues both sides with a diagram, then judges using the cause of inflation and the time frame.
- Case study practice: fighting inflation with interest rates
A whole H2 case study: 30 marks, about 75 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 9570, 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, Model essay (b): are supply-side policies best?, Case study practice: fighting inflation with interest rates
I can explain fiscal, monetary and supply-side policy and judge how well each works.
Syllabus 9570, 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; 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; 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
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, Pegs, reserves and capital flight, Supply-side policies, How effective are supply-side policies?, Depreciation and the trade balance, Model essay (a): two tools against inflation, Model essay (b): are supply-side policies best?, Case study practice: fighting inflation with interest rates
I can explain how macroeconomic aims can conflict and how that shapes policy choices.
Syllabus 9570, 3.2.3(c). Macroeconomic Policies: Possibilities of conflicts between macroeconomic objectives and how this may affect governments' decision on macroeconomic policy
Taught in Conflicts between objectives
Original teaching notes