Paper 3 Policies - Economics Paper 3 (with examples)

In this video, I'm going to be showing you the best policies to remember for the 10 mark question in paper 3. Just a reminder for this question, you need to follow these rules. You need to pick one policy. If you recommend more than one policy, your first policy will be marked. You need to be consistently quoting the text provided. And what I mean by matching the scope, if it is a micro problem, you use a micro policy. If it is a macro problem, you use a macro policy. And for the entire paper, you need to ensure that you have a balance such as its strengths and limitations. And here's a top tip. Diagrams are not required. So here are the five overarching policies that I highly recommend you to remember. I'm going to use this acronym as smart. One, subsidies and taxes. Two, moniary policy. three, awareness and nudges. Four, regulations and legislation. And five, targeted government spending. So let's dive into the first one, subsidies and taxes. Subsidies and taxes are highly effective as it changes the incentives of the stakeholders. For instance, in microeconomics, it has the ability to make it more expensive or cheaper to produce or consume. So taxes are able to reduce the production and consumption of demerit goods and promote merit goods. And in the case for international trade, you can apply these to tariffs as tariffs are essentially a tax on imports which makes imports more expensive which will increase the domestically produced goods in the local economy. And subsidizing domestic producers for exporting makes them internationally more competitive. And taxes are great for equity as progressive taxes are the ultimate tool for reducing the genie coefficient of any country. So here you can talk about taxing the rich and the rich will be funding government revenue. Government revenue will be spending on schools and education which allows individuals with significant potential to receive top tier education in order to be highly productive in the future. Next we have monetary policy. This is clearly a macro policy and it essentially controls the cost of borrowing and reward for saving. The incentives completely change when there is an increase or a decrease in interest for both consumer and businesses. When there's inflation, you increase the interest. Consumption and investment will decrease. And when the interest rate is low, then consumption and investment increases. Please be reminded that if it is a macro problem, use a macro tool. Do not use a macro tool for a micro problem. But that being said, in the case of exchange rates, you can use the interest rate to attract or deter investors into buying or selling the currency. So if the government is a net exporter and their currency is appreciating in value, decreasing the interest rate will be a policy that they could utilize. As there will be reduced returns for investors, thus less hot money coming in. There will be a reduction in demand for the local currency and at the same time there will be capital outflow from the domestic economy. as investors from the domestic economy will move their money out in order to chase the highest possible returns in other countries. Another policy we can use is the awareness and nudges. This is when firms or governments exploit users irrational human error without restricting freedom. So this is only for microeconomics and you could use things like choice architecture or awareness campaigns to reduce or encourage consumption or production of a demerit or merit good. One can be for cigarettes. The government can be running anti-smoking campaigns and at the same time forcing cigarette companies to package the cigarettes in white and it's tucked in behind the counter. So the government has changed its choice architecture as the availability bias by hiding the product behind closed cabinets reduces the visual cue which triggers the craving and it just simply increases the friction of buying the cigarettes as there are a few extra steps that the consumer has to take in order to buy what they want. Moving on to regulation and legislation. This is when the government directly intervenes. So in microeconomics, this can either be governments forcing the break up of monopolies or to enforce quotas on common pool resources and bans. And this type of regulation usually happens when the market-based policies do not work. And another one can be for equity and equality by implementing a minimum wage to protect low-income workers, which also has benefits and drawbacks for certain stakeholders within the economy. And the last policy I recommend is targeted government spending. This is when they directly inject money into the economy to build capacity and confidence. So this is pretty generic. So in microeconomics they could be spending a lot of money on public goods or merit goods which benefits everyone in the economy. Then you are able to evaluate this by stating that depends if the government has got enough money. Or you could use the opportunity cost argument as education and healthcare are very expensive and the government has to choose one or the other. And in the case for macroeconomics, you could use elements of fiscal policy to control aggregate demand such as spending money on government facilities to create jobs. And these jobs means income for individuals which mean they will spend in the economy, boosting consumption which is a component of aggregate demand. And the last one will be equity and development which is spending on human capital and infrastructure which could break the poverty cycle. I like to use this one in development economics purely because it is very similar to fiscal policy as they are spending on education and health and the infrastructure required in the economy and the evaluation points. You can include corruption, lack of funding in order to improve their infrastructure which will deter multinational companies from coming in and it also depends on how much the government is willing to spend in their own economy as if there is an insufficient amount spent no change will happen. So these are my policy recommendations for every single paper 3 10 marker for the IB economics. I am now going to show you a script and this student scored four marks in this question. Using the text data provided and your knowledge of economics, recommend a policy that could be used in Japan to increase the rate of inflation to 2%. Of course, there was a case study with this paper, but we are going to ignore that for now because the main purpose of this video is to deconstruct the answer and show you how this script managed to get full marks. So, let me firstly give you a guide. So the orange at the top is the introduction. The green is the advantages of the policy. The blue is the disadvantages and limitations of the policy. And then we conclude with the final two lines. The student has started their answer by introducing that they are going to use expansionary monetary policy to achieve the rate of inflation of 2%. And they have discussed the effects of expansionary monetary policy by saying that it increases the money supply. It encourages borrowing, increases consumption and investment which in turn will increase aggregate demand. This is the first paragraph. Moving on to the second paragraph, the candidate starts by saying that expansionary fiscal policy has failed in Japan. Then moves on swiftly to explain that expansionary monetary policy is better as it does not rely as much on consumer confidence compared to fiscal policy. More on this later. Then they've said lower interest rates will likely to increase spending and borrowing and additionally when implemented gradually for example 0. 1%. This allows Japan to observe the influence it has over the economy. Moreover, it can be reversed through contractually monetary policy in order to counteract any unwanted impacts and it does not require any government spending which saves the government budget. As you can see here, this candidate has explained the advantages of monetary policy in context with the case study. Moving on to the next paragraph, which will explain and analyze the disadvantages and limitations to monetary policy. They state that monetary policy has time lags and it could take months before the economy to feel the effects of monetary policy and the longer the inflation remains low, the more unemployment will exist. Now if you remember what I said about no diagrams included but this candidate has decided to use a Philips curve which is figure two here. But remember that in the rubric for paper three 10 mark questions there is no diagram required. Moving on. So due to these time lags this will have negative impacts on GDP. This will push inflation down further which will affect consumer confidence which will likely play a role in the effectiveness of expansionary monetary policy. And finally, the candidate wraps it up with a twoline conclusion to finish off the question. You can see that this candidate has written this answer very efficiently and they were able to achieve 10 out of 10 in simply one page. Some of you teachers may disagree with the mark. However, this is what the IB gave this candidate. Just going back to the four rules to not fail. The script that we just analyzed followed every rule. They used one and only one policy which was monetary policy. They quoted the text provided. They matched the scope as they used a macroeconomics tool or policy to counteract a macroeconomics problem. And they had the advantages and disadvantages and limitations to monetary policy. I hope that helped. I hope you guys have a good day. Bye-bye.