Evaluate macroeconomic policies, apart from monetary policy, the UK government could use to reduce inflation.

Edexcel A-Level Economics 25 Mark Question

UK inflation, as measured by the CPI, rose to 10.1% in the 12 months to July 2022, compared to 2.0% in the 12 months to July 2021. Evaluate macroeconomic policies, apart from monetary policy, the UK government could use to reduce inflation. (June 2023)

Plan

• Paragraph 1
  • Argument: one policy to reduce inflation is contractionary fiscal policy 
  • Diagram: left shift in AD 
  • Evaluation: this can improve the budget deficit but it can also trigger a negative multiplier effect and therefore cause a deflationary spiral
• Paragraph 2
  • Argument: another policy to reduce inflation is supply-side policies 
  • Diagram: right shift in LRAS
  • Evaluation: time lag
• Conclusion: importance of planning ahead with higher interest rates and the use of supply side policies, contractionary fiscal policy can be used as a last resort. 

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