Government policies — practice questions

Name the four families of government policy the standard allows, and name the New Zealand institution responsible for each.

Explain in detail the difference between demand-side and supply-side policies, and why choosing the wrong one wastes the policy.

New Zealand faces high inflation and rising unemployment at the same time.

Compare and contrast the suitability of monetary policy and fiscal policy for this situation, and give a reasoned judgement about what the government and the RBNZ should do.

State the RBNZ's inflation objective and explain how raising the OCR reduces inflation.

Explain in detail how monetary policy affects inflation through both the spending channel and the exchange rate channel.

The RBNZ raises the OCR sharply to bring inflation back to its target band.

Explain the direct impact on inflation, and the flow-on effects on economic growth and on international trade. Refer to economic models throughout.

Explain how expansionary fiscal policy reduces unemployment. Refer to an economic model in your answer.

Explain in detail the difference between demand-side and supply-side fiscal policy, using the AS/AD model and the PPF.

The government increases spending substantially to reduce unemployment during a downturn.

Explain the direct impact on unemployment and the flow-on effects on inflation and on the balance on goods and services. Refer to economic models throughout, and explain how the design of the spending changes the size of the negative flow-ons.

Explain how a tariff protects a domestic industry, and name one reason New Zealand generally avoids protection.

Explain in detail how a regulation that raises firms' compliance costs affects the economy, and explain the case for and against removing it. Refer to an economic model.

New Zealand signs a major free trade agreement that removes tariffs on its agricultural exports to a large market.

Explain the direct impact on international trade, and the flow-on effects on economic growth and on inflation. Refer to economic models throughout.

Explain what a flow-on effect is, and state how many the standard requires and on how many issues.

The government increases spending to reduce unemployment.

Explain in detail the flow-on effect on inflation and on the balance on goods and services.

The RBNZ raises the OCR sharply to reduce inflation, and the negative flow-ons on unemployment and on international trade are severe.

Compare and contrast the two flow-ons, and give a reasoned judgement about which is the more serious cost of the policy.

State the three things the Excellence criterion requires, and explain why a single policy cannot meet it.

Explain in detail why supply-side policy is the most useful tool for minimising the negative flow-on effects of demand-side policy.

Unemployment in New Zealand has risen sharply during a downturn, and is concentrated in two regions where a major employer has closed.

Justify a combination of government policies that reduces unemployment while minimising negative flow-on effects on inflation and on the balance on goods and services. Refer to economic models throughout.

State what AS91227 requires for Achieved, and state what Excellence adds.

Explain in detail what it means to integrate changes shown on economic models into an explanation, and why the flow-on sections need models just as much as the direct impact does.

Two students write AS91227 reports on the same issue. Student A writes ten pages, nine of them on how the RBNZ's OCR decision reduces inflation, with excellent diagrams. Student B writes six pages: two on the direct impact, two on flow-ons, and two justifying a combination of three policies.

Compare and contrast the two reports against the criteria and give a reasoned judgement about which will achieve the higher grade, and what each should do differently.