Conceptual understandings

  • Change in the conditions of the demand and supply sides of the economy cause economic activity to vary over time.
  • Fluctuations in economic activity impact the economic well-being of individuals and societies.
  • Different schools of macroeconomic thought identify different causes and offer different solutions for macroeconomic problems.
  • Government intervention attempts to achieve macroeconomic objectives through a choice of policies.
  • Political, economic, social and environmental factors are interdependent and will influence the effectiveness of government policies.

Key concepts: scarcity, choice, efficiency, equity, economic well-being, sustainability, change, interdependence, intervention.

TopicsSL/HL Contents
Measuring economic activity and illustrating its variations>> National income accounting as a measure of economic activity;
>> Equivalence of the income, output and expenditure approaches to national income accounting, with reference to the circular flow model;
>> Nominal & Real GDP;
>> Nominal & Real GNI;
>> Business Cycle;
>> Measuring economic well being.
Variations in economic activity>> Aggregate Demand;
>> Determinants of aggregate demand components;
>> Short Run Aggregate Supply;
>> Long Run Aggregate Supply;
>> Macroeconomic equilibrium;
>> Short run equilibrium;
>> Assumptions and implications of the monetarist/new classical and Keynesian models.
Macroeconomic objectives>> Economic Growth;
>> Measurement of Economic Growth;
>> Consequences of Economic Growth;
>> Low unemployment;
>> Low & Stable Inflation;
>> Potential conflicts between macroeconomic objectives.
Economics of inequality and poverty>> Relationship between equality & equity;
>> Measuring economic inequality;
>> Measuring of poverty;
>> Causes of economic inequality & poverty;
>> Role of taxation in reducing poverty;
>> Policies to reduce poverty, income and wealth inequality.
Demand management —monetary policy>> Monetary policy;
>> Goals of Monetary policy;
>> Tools of monetary policy;
>> Effectiveness of monetary policy.
Demand management —Fiscal policy>> Fiscal Policy;
>> Goals of Fiscal Policy;
>> Keynesian multiplier;
>> Effectiveness of monetary policy.
Supply Side Policies>> Goals of supply side policy;
>> Market based policies;
>> Interventionist policies;
>> Effectiveness of supply side policies.

Inquiry—possible areas to explore

  • How the government of a chosen country has responded to business cycle fluctuations.
  • The costs of unemployment or inflation on different stakeholders in a chosen country.
  • The successes/failures in meeting government objectives, based on data collected for a variety of countries over a given period of time.
  • The successes/failures of measures adopted to reduce income and/or wealth inequality, for a chosen country.
  • How key stakeholders (such as businesses and governments) can continue to meet people’s needs with limited resources.
  • The cause of trade-offs between economic growth and sustainable development and how these might be addressed.
  • What sustainable economic growth might look like and how it might be achieved.
  • The successes and constraints of fiscal policy in achieving low unemployment as a macroeconomic objective, for a chosen country.
  • The economic and social impacts on different stakeholders of monetary policy, for a chosen country.

Theory of knowledge questions

  • To what extent do political beliefs and ideologies influence a person’s preference for one school of macroeconomic thought over another?
  • It is often the case that two or more economists, observing an identical set of macroeconomic data (national income accounts, inflation, unemployment), arrive at very different explanations of events. How can this be accounted for? Could this occur in a natural science?
  • There are often conflicts between important macroeconomic objectives. What kind of knowledge criteria should policy makers use to make decisions in favour of pursuing one objective over another?
  • Using the concepts of natural rate of unemployment and full employment output, how may language affect perceptions about economic events or situations?
  • Can political beliefs and ideologies affect a person’s preference for one particular policy over another?
  • When evaluating economic policies, how important are cultural differences?
  • How much statistical data should economists use in determining the reliability of any economic policy result?
  • Economists and those who use economic theory may disagree with each other about the outcome of economic policies. On what basis might we make judgments about their relative conclusions?