Government and the Macroeconomy · 4 question types
Past paper frequency (2018 to 2024)
This topic accounts for approximately 16% of your exam marks.
Fiscal and monetary policy are core Section B evaluate topics; expansionary vs contractionary, tools and limitations tested consistently.
Governments have three main toolkits for managing the economy. Each is set by different people and works through different mechanisms.
| Policy family | Who controls it | Main tools | Acts on |
|---|---|---|---|
| Fiscal policy | The government (treasury / finance ministry) | Taxes and government spending | Aggregate demand |
| Monetary policy | The central bank | Interest rates and money supply | Aggregate demand |
| Supply-side policy | The government (long-term) | Education, infrastructure, deregulation, R&D, tax reform | Aggregate supply (productive capacity) |
The first two are demand-side policies: they try to lift or lower aggregate demand. The third is supply-side: it raises the economy's long-run productive capacity. Combining the three is how a government tries to pursue all five macroeconomic aims of topic 12 at once.
This topic walks through each family, the tools each uses, and the limitations to be aware of.