Tips on Writing a Good Macroeconomics Essay Paper

Hi my dear readers,

Tips on Writing a Good Macroeconomics Essay Paper (for A levels) 

I'll be sharing useful tips and tricks on how to write a good macroeconomics essay paper today. 

There are actually many good articles and guidebooks on how to write a good economics essay during a timed examination. I myself have a few here on JC Economics Essays. 

However, one article I read recently was quite unique - on "how to write a good Macroeconomics essay for A levels". 

Now that was quite special, and gave me a lot of material to think about! It was a nice emphasis on an important, but specific, particular aspect of economics. 

It said that basically there are a few important things to take note of: 

First, know the allocation of marks. 

Second, know the basic macroeconomic demand-side and supply-side policies very well. 

Third, explain your Economics clearly. 

Fourth, make sure you use case studies (which basically means use evidence and examples). 

Fifth, make sure there is a good evaluative conclusion to the Economics essay. 

Last, but certainly not least, be sure to have good time management. 

These are all good points. 

In fact, knowing the allocation of marks, explaining Economics clearly, having an evaluative conclusion, and allocating your time wisely are in fact also good tips on writing any Economics essay during an examination. 

Let's look at these useful and relevant ideas in detail, for your benefit. 

Know the allocation of marks for the particular Economics examination. 

H1, H2, H3 for A levels? Paper 3 for the A levels? GCSE? AS level? IB Economics? 10 or 15 marks? 25 marks? 35 marks? The principle is simple once you know the rubrics of the examination: the higher the marks, the more Economics material you will have to provide. What is the allocation of the marks for the particular examination you are taking? 

Understand macroeconomic policies extremely well. 

To be frank, most Economics essays on macroeconomics are extremely predictable. 

Economics examiners and tutors can only basically test students on fiscal policy, monetary policy, exchange rate policy and supply side policies (prices and incomes, etc) and how these affect the general price level, real output, and a particular country’s macroeconomic objectives – whether the country in question is the United States, United Kingdom, or Singapore for that matter. 

It goes without saying that if you are sitting for the A level examination in Singapore, then be prepared for questions about Singapore (and a few other countries as well). 

If you are sitting for the Economics examination in the UK, then be prepared for questions about the United Kingdom; sitting for the exam in India, Russia, and so on, then the questions set will be about India, Russia, and so on. It really is that simple! 

For demand management policies, anything that increases consumption (C), investment (I), government spending (G) & net export (X-M) will surely increase AD (Aggregate Demand). 

Meanwhile, for the supply side policies, anything that increases the quality or quantity of the factors of production will definitely affect AS (Aggregate Supply). 

A quick revision: the factors of production are - land, labour, capital, and enterprise /entrepreneurship/ risk-taking entrepreneurs. Some other economists also suggest that anything affecting levels of productivity, the level of employments of capital or labour, and competition will also increase AS. 

The economics explanation must be clear. 

Economics students must practice or develop their writing skills, to make clear explanations, to a very high degree. Economics students must be able to explain a logical, clear, theoretical-based transmission mechanism (process of an event) clearly. Here is a good example, about monetary policy using loanable funds theory: 

"When money supply is reduced, according to loanable funds theory, interest rates will increase, and thus firms may be tempted to cut investment spending and households may be tempted to cut consumption. This is because the costs of financing a project or business expansion have increased, and the costs of borrowing for consumption have increased. When investment and consumption both fall, AD will also decrease, and the AD curve will shift to the left, curing demand-pull inflation."

I often use a different formulation (which can be found in my e-book called Success in Macroeconomics), but the idea is still the same - have clear economics explanations. 

Read Economics case studies; provide contextual evidence. 

Sometimes, students do not realise that they can actually impress Economics tutors or examiners to get some extra marks by showing a decent level of maturity in their writing and also by projecting themselves as a well-read, knowledgeable candidate. 

Students can always give examples of real life events. 

For instance, in the UK for the A level examinations students could write about incidents during the era of Margaret Thatcher (say, the coal mine strikes) when they write about supply side policies, or what happened during the era of Nigel Lawson, or write about Gordon Brown's economic ideas and policies. 

Sometimes Economics students tend to give only real world examples without a theoretical framework. That is not good. However, sometimes the reverse problem is true. Some students tend to be very theoretical without actually relating any real-life examples or incidents to support the Economic theories and models. 

A good evaluative conclusion is needed for the best essays. 

According to many Economics teachers, there are few standard techniques that usually work for evaluation, and can be applied in various combinations. 

First, Economics students can always write about time lags (delays) in policies, such as the J-curve effect, recognition lags, and implementation lags - and government failure in general. 

Second, students can also always compare between macroeconomic policies. For instance, students could discuss all the policies, then justify which is more suitable for economic growth, and what is the reason for this argument? Always justify your economic argument. 

Third, students can also comment on what will happen to the general price level and the real output level in an economy near or at full employment after demand-management policies happen - demand-pull inflation will result. 

Fourth, students can also do a basic CBA (cost benefit analysis). For instance, for fiscal policy, an increase in government spending may not raise AD that much due to the crowding out effect; supply side liberalisation might have massive problems, for instance during the privatisation and deregulation for British Rail and British Energy there were massive failures, whilst the dismantling of the national minimum wage could potentially create greater income inequality in the UK, and so on. 

Time management/ time allocation is crucial. 

Time management is crucial, not just for Economics at A levels, but also for any other examination you might be taking, beyond just economics examinations. 

Time allocation works on the same principle as mark allocation - if you are getting more marks for the essay, you have to allocate more time to it. 

Be sure to spend some time planning, and then spend most of  your time writing. You will have to do some thinking before you start crafting your essay. 

These are really good and useful ideas which can help you write a really strong macroeconomics paper. 

Hopefully those tips help in crafting an excellent Economics essay; all the best for your examinations, thanks for reading and cheers! 

JC Economics Essays - tips on writing a good macroeconomics essay paper

Singapore's inflation: Explain, using relevant examples, the causes of inflation. [10] (Rephrased Economics Question)

(a) Singapore’s inflation remains high, at 5.7% in November 2011 from a year ago, because of higher rentals, private transport costs, and recreation costs.  Explain, using relevant examples, the causes of inflation. [10]

Inflation can be defined as a persistent and sustained increase in the general price level of an economy. Most commonly, the Consumer Price Index (CPI) is used as a barometer to measure inflation, measuring the price of a basket of commonly used goods and services; a persistent and sustained rise in the CPI can be considered inflation. The causes of inflation can be attributed to demand-pull and cost-push inflation, one affecting the aggregate demand (AD) and the other the aggregate supply (AS) of the economy.

Demand-Pull Inflation

The AD-AS diagram below demonstrates demand-pull inflation.

AD comprises C + I + G + (X-M), which are consumer spending, investment spending, government spending, and net exports. In the diagram, if any of the components increases, AD shifts rightwards to AD’ and then AD’’, causing the general price level to rise over a period of time, and inflation results, if the economy is near or at the full employment level.

On the consumption side, for instance, if consumers spend more because of low interest rates encouraging borrowing for consumption, for example on recreational activities, then AD will shift to the right, thus contributing to demand-pull inflation. If firms feel positive about the future economic outlook, and invest more, then AD will also shift to the right. If governments spend more on the military or police forces, or pursue a Keynesian fiscal policy of government spending, then AD will shift to the right, thus contributing to demand-pull inflation. If there is an export boom for local products exported overseas, or there is a softening of local demand for imported goods from overseas, then AD will also shift to the right. Hence, it is clear that excessive C, I, G, or increasing X with decreasing M, will lead to demand-pull inflation if the economy is near or at the full employment level.

Cost-Push Inflation

On the other hand, there is cost-push inflation as well, where AS moves upwards from AS’ to AS’’ and to AS”’. This is demonstrated in the diagram below:

This is mainly due to rising costs, and since the aggregate supply of goods and services is made up of various inputs, increases in the costs of the various factors of production lead to inflation. The supply of goods and services result from the factors of production of labour, capital, land, and entrepreneurship.

There are internal cost-push factors: rising wages or the rising power of trade unions demanding higher salaries, rising capital costs, and increasing scarcity of land and various input resources make cost-push inflation a pertinent possibility. For instance, demands for higher wages can lead to a wage cost spiral, which will raise the general price level. Higher capital costs will lead to a higher production cost for firms that produce capital-intensive goods as well. Increases in the levels of rentals in Singapore, for instance, will also lead to cost-push inflation.

There are also external cost-push factors. Exchange rates and the foreign sector can also lead to inflation if many goods produced use foreign inputs; hence there might be imported price-push causing cost-push inflation as well. In Singapore’s case, goods are usually produced using inputs from other countries due to our lack of natural resources; if those resources become more expensive overseas or if the Singapore dollar depreciates vis-à-vis those other countries’ currencies, then imported inflation will result.

Thus, inflation can be caused by demand-pull factors, cost-push factors, or a combination of both. 

JC Economics Essays: Tutor's Comments - This is a very well written examination piece, but right off the bat one possible improvement to this Economics essay is that it could do a lot better with more specific contextual examples. It does have examples, yes, and there are indeed some specifics inside this essay paper. However, it could have more specific examples. For instance, increases in the levels of rentals in Singapore could be enhanced with the use of industrial/ residential/ properties/ or businesses such as REITS, etc, etc. The usual tutor's comments also apply here: think of the other ways in which you could improve this essay. If you  were an Economics tutor marking this Economics paper, what would you comment on and why? Note that there is no need here for an evaluative conclusion simply because this question is only worth 10 marks, and it is only the 15 mark and 25 mark questions that require a proper evaluation with justification and evaluative comments and professional opinions. 

Compare and contrast the various types of economic efficiencies. [10]

Compare and contrast the various types of economic efficiencies. [10]

The fundamental economic problem is a problem of scarcity, necessitating choice. This is because human wants are potentially unlimited, but resources are limited, and hence choices have to be made, “efficiently”, between competing uses for the same resources. The scarce resources, or factors of production, are land, labour, capital, and entrepreneurship. Land refers to resources, gifts of nature, and other natural factors. Labour refers to human effort and work. Capital refers to any good that can be used to produced another good. Entrepreneurship refers to risk-taking, organisation, and business acumen, among other things. It can be said that efficiency is concerned with the optimal production and distribution of society’s scarce resources. This economics essay compares and contrasts the various main types of economic efficiencies – productive efficiency, allocative efficiency, dynamic and static efficiency, X-inefficiency, social efficiency, and Pareto efficiency.

Productive Efficiency

First, productive efficiency occurs when the maximum number of goods and services are produced with a given amount of inputs. This will occur on the production possibilities curve or production possibilities frontier (PPC or PPF), meaning that any point along the PPC will be productively efficient. On the PPC, it is impossible to produce more goods without producing fewer services. Productive efficiency will also occur at the lowest point on individual firms’ average cost curves (AC curves). This is because productive efficiency can be thought of as the method of least cost production, which means that production costs are minimised. Productive efficiency is not the same as the other types of efficiencies.

Think: how would you draw the PPC?

Allocative Efficiency

Second, allocative efficiency occurs when goods and services are distributed according to society’s preferences or when they are allocated in accordance with maximising society’s welfare. An economy could be productively efficient but produce goods that people that do not need, and this would be allocatively inefficient. In other words, allocative efficiency is a subset of productive efficiency, where productive efficiency is a necessary condition of allocative efficiency. (A necessary condition is a condition for some state of affairs that must be satisfied before the state of affairs can be obtained.) It should be noted that allocative efficiency occurs when the price of the good produced by a firm equals the marginal costs of production.

Dynamic Efficiency

Third, dynamic efficiency refers to efficiency over time, whereas static efficiency refers to efficiency at a particular point in time. The first concept has the element of time taken into consideration whereas the other does not consider time. Dynamic efficiency involves the introduction of new technology and working practices to reduce costs over time, whereas static means “at a fixed point in time”. Basically, this concept of dynamic means that there are changes over time whereas static means that time is held, as it were, frozen.

X-inefficiency

Fourth, X-inefficiency occurs when firms do not have incentives to cut costs. This is usually associated with monopolies, which usually pursue rent-seeking behaviour rather than think of how to lower costs. For instance, a monopoly which makes supernormal profits may have little incentive to get rid of surplus labour. Therefore, a monopolistic firm’s average costs may be higher than necessary.

Social Efficiency

Social efficiency occurs when externalities are taken into consideration and occurs at an output where the social cost of production (SMC) = the social benefit (SMB), or alternatively, the marginal social costs (MSC) = the marginal social benefits (MSB). This is closely related to both the concepts of allocative and Pareto efficiency, also known as Pareto optimality. Pareto efficiency or optimality is defined as a situation where it is not possible to make one party better off without making another party worse off. Hence, Pareto efficiency is socially efficient and also allocatively efficient, at society’s level.

Conclusion

In conclusion, there are many efficiency concepts in Economics and it is important to understand economic efficiency. Many of the concepts are related and can be understood in relation to each other.

JC Economics Essays – Tutor’s Commentary: This is a good introduction to the various “efficiencies” that Economics has to offer, not just at ‘A’ levels, but also at O, AS levels and introductory undergraduate Economics as well. ‘A’ level Economics can be quite esoteric, it is true, and this Economics material might seem difficult. Think positively instead: how could you make this Economics essay comprehensible and easily understood by you? Let’s do some counterfactual experiments here. Put yourself in the role of the Economic tutor, the examiner, or the lecturer, and you were marking this essay paper. If you were an Economics tutor, how would you judge this essay? What were its strengths and weaknesses, and why do you think – as a professional Economics tutor – those parts of the Economics essay were strengths or weaknesses? Thanks for reading, all the best and good luck!

Explain carefully why imperfect information and the immobility of the factors of production may lead to market failure. [10]

Explain carefully why imperfect information and the immobility of the factors of production may lead to market failure. [10]

Market failure can be defined as the failure of the free market mechanism to provide goods in a socially optimal and thus efficient manner, and is usually attributed to imperfect markets, the existence of externalities, the lack of provision of public goods, and inequity. Imperfect information and immobility of the factors of production also lead to market failure, because they directly contradict the assumptions of the free market system. The two main assumptions violated are firstly that all participants have perfect information, and secondly that the factors of production are mobile, such that they can respond to changing prices which function as a signal for producers to move resources into various areas of production. With those assumptions violated, Pareto optimality - when one person cannot be made better off without making someone else worse off - cannot be derived from perfect competition in a free market. This paper explains carefully why imperfect information and the immobility of the factors of production lead to market failure.

The free market system assumes that consumers have perfect knowledge of costs and benefits, thus the market-clearing equilibrium is able to be reached when individuals’ valuation of the good equal suppliers’ marginal cost of production; hence demand = supply. But in reality, consumers are often ignorant about the quality of the goods and durables they purchase. These are cases of imperfect information, which cause market failure as individuals are unable to fully obtain the marginal benefits of the good. As the market demand curve is derived by summing up all individual demand curves an optimal market equilibrium cannot be derived. On the supply side, firms are often ignorant of market opportunities, prices and costs, and may often make inaccurate estimations of market consumer demand or fail to respond promptly to demand changes due to errors in judgment. Thus market failure occurs.

Imperfect information is present when consumers and producers do not or are unable to consider society’s benefits and society’s costs, as reflected in the diagrams below.

Insert Economics diagrams here: HINT, draw externality diagrams. Why externality diagrams?

In the first diagram, there is an overproduction of a good distorting the market. Negative externalities, if unknown to producers, or if they merely consider their own private costs benefits and ignore society’s efficiency, also result in market failure, but this time in overproduction of a good.

In the second, there is an underproduction distorting the market. Consumers often have lower than optimal demand for desirable public goods, for example healthcare and education, as they only take into account current utilities, failing to judge the full extent of welfare and benefits the good delivers to society. This presence of unacknowledged positive negative externalities results in the underproduction of the good. Hence, the failure to acknowledge externalities is a lack of full or perfect information that distorts the market.

For private markets to function efficiently, factors such as labor and capital must be able to move freely. If factors are immobile, due to perhaps occupational rigidities and inefficient job seeking processes and bureaucratic issues, it affects the supply of these knowledge-based products. This immobility can lead to the wrong price signals and inefficient allocation of resources to these industries. For the socially optimal equilibrium to be reached, firms and labor must respond to market signals. When firms have trade unions as stakeholders, markets tend to fail as unions tend to aggressively seek minimum wage rates or protect their wage benefits or restrict entry of new labor, even in the face of declining market demand.

Hence, both imperfect information and lack of mobility of resources affect the workings of the price mechanism in the free market, and because perfect competition fails, then there is market failure, and the Pareto efficiency promised by perfect competition in the free market does not arise.

JC ECONOMICS ESSAYS - Tutor's Comments: This Economics essay is rather well written and addresses the issue of market failure well. There are many good aspects to learn about it. However, it was not written by an "A" level student but was written by a trainee teacher (trainee tutor) from education school. Perhaps, as improvement, the author should have also compared and contrasted asymmetric information with imperfect information. For more information on asymmetric information, see George Akerlof and Michael Spence (for further advanced Economics readings). 

“The Central Problem of Economics is scarcity and choice.” Is this statement true?

“The Central Problem of Economics is scarcity and choice.” Is this statement true? (25)

Scarcity is defined as a situation in which resources are not enough to satisfy everybody’s wants. The outcome of satisfaction is not to the level we want it to be. Scarcity is the most fundamental concept in Economics. Scarcity is based on a few assumptions.

First, the fundamental assumption is that man’s wants are unlimited. Man is never satisfied with his current level of consumption, and he always wants more. Second, is that the world’s resources are limited. These resources are the factors of production of land, labour, capital, and entrepreneurship. Land refers to natural resources and all the fruits of the earth. Labour refers to human effort and skill. Capital refers to any machine or technology that can produce things. Entrepreneurship is the ability to take risks, organise and plan production effectively, and coordinate the other factors of production in the pursuit of profits. All countries have a finite amount of these factors of production.

Based on these assumptions, it is clear that it is not possible to produce all that we want, given that resources are finite while man's wants are unlimited. Some goods will have to be sacrificed to obtain more of other goods. This means that a choice has to be made.

To illustrate this concept, a man has a certain amount of money to spend. He decides to spend it all on sweets and chocolates. He can spend half his money on sweets, and the other half on chocolates. If he wants more sweets, he will have to give up some chocolates and vice versa. In the same way, for a firm, its resources are limited. If it decides to produce more of product A, it has to give up some production of good B. Thus, scarcity applies both to consumers and producers.

Figure 1: Production possibility curve/ Production possibilities frontier

The Production Possibility Curve (PPC) further illustrates scarcity. The PPC shows all the possible combinations of 2 goods which a firm can produce, given a fixed amount of resources. At combination a, the producer can produce 100 units of X and 0 units of Y. While at combination b, he can produce 200 units of Y and 0 units of X. He may also choose to produce at c, 70 units of X and 150 units of Y. All these combinations are possible combinations of goods that can be produced. To produce more of one good, tha other has to be sacrificed. Combinations d and e are not attainable, which also shows scarcity. It is the same at country level.

Scarcity forces us to choose. Since we cannot have everything, we have to decide on which one we will have to forgo. Since comething has to be forgone, there is a cost involved. In a world of scarcity, there is a cost of sacrifice invlved in satisfying a particular want. This cost is called opportunity cost, and is defined a the highest valued alternative that had to be foregone to satisfy the particular want.

The basic economic problem is scarcity. Because of scarcity, we have to choose carefully on the use of our limited resources. The consumer faces the problem of satisfying his unlimited wants. He wants to have infinite satisfaction, from his finite purchasing power. Scarcity makes this impossible. As such, he will have to make a choice, based on relative opportunity costs, on which goods and service he will spend. He will have to decide which goods he has to forego and which he wants to consume.

For a producer, he will want to make infinite profit, using his finite resources. Likewise, scarcity makes this impossible, and he will have to make a choice, based on relatve opportunity costs, on which good he wants to produce.

From a Macroeconomic perspective, the basic Macroeconomic concerns of the government are inome distribution and economic stability. The relative weightage given to these concerns will determien what type of policies the government decides to employ.

Income distribution is important to create a ‘fair’ and a ‘just’ state. This is a Macroeconomic objective, and it requires government intervention through progressive taxation, social insurance, benefits, etc. Reducing large income gaps and poverty are important goals of development and are hallmarks for civilised society. Extreme inequality and widespread poverty can result in socail nhappiness and unrest, which in turn result in political and social instablilty. The crime rate rises, illiteracy goes up, welfare costs rise, which all put a great strain on the economy.

The concept of scarcity comes into play here. Scarcity means that the resources of a counry are limited. As such, every available resource must be used to its fullest potential.The government needs to appreciate this when deciding the level of income equality it hopes to achieve.

If the poor are to be given a lot of financial aid, they may be spurred to urther improve their skills, and contribute more to the economy. As the saying goes, a happy worker is a good worker. Likewise, if the poor are left behind as the countyr pospers, they may feel alienated. As such, they may refuse to work and may even resort to illegal activities. Since the country’s population is limited, sih a waste of scarce resources would be disastrous.

However, if too much aid is given to the poor, and too much money is taken from the rich, a whole new set of problems may arise. The poor may start to become over-dependent on government aid. This is the situation currently occurring in many Western developed countries. The poor live of their welfare payments and they contribute nothing in return to society. To support such high amounts of aid, the rich would have to be taxed a high amount, which may result in great unhappiness and discontent. This may result in the rich evading tax payments or even force them to migrate to other countries that tax less. This scenario too would be detrimental to the economy as the government would receive lesser tax revenue.

The concerns highlighted above mean that the government will have to make tough decisions. The government will have to decide on the best policy based on the opportunity cost of the available measures.

In a free market economy, the pricing system is prone to high unemployment, inflation and Balance Of Payments (BOP) difficulties. Hence, the government seeks to stabilise the economy. In this, it has four aims.

First, is full employment. Unemployment wastes sarce resources, as stated above, and brings hardships to those without jobs. Full employment is not equal to zero unemployment. It is the employment level asociated with some frictional unemployment.

Second, is price stability. This provides a stable environment for investment and growth. Price stability is not zero inflation, but usually refers to 2-3% mild inflation that is necessary to stimulate growth.

Third, is a healthy BOP. This is to ensure healthy reserves and a stable exchange rate. Last is economic growth, which is the increase in real national income per capita, which should ensure higher living standards.

Ideally, the government would seek to achieve all these aims. However, this is not always possible. Sometimes, to achieve one aim, another has to be compromised. For example, there is large-scale unemployment due to the lack of demand. To counter this, the government will employ an expansionary fiscal policy to boost demand. Government spending on public projects will increase to boost demand. However, this may, in turn, cause demand-pull inflation.

Thus, the concepts of choice and cost come into play again. The government will have to make choices based on the costs of the different measures available. Hence the statement “The Central Problem of Economics is scarcity and choice” is true.

JC ECONOMICS ESSAYS Tutor's Comments: Well written essay, interesting and insightful! This is not how I would have addressed this particular Economics essay question, but this essay is well thought out and well written, covering most of the points and showing a range of Economics knowledge and depth of coverage. It is creative and interesting, and shows that students can craft a range of possible responses to economics essays. Brilliant effort! Do please think of how you would draw and label the PPC/PPF properly. 

Fundamentally, the central problem of economics has always been about scarcity necessitating choice, and hopefully that choice made by individuals, organisations like firms, or governments is a rational choice, although that is not always the case (since humans can be quite irrational). How this statement can be explained, however, can take on various forms, and the most common form is the one by Lord Lionel Robbins of the LSE (you can read up on him if you are interested). 

Therefore, the question arises: what would be the "standard" or proper examination technique for responding to this Economics essay question? How would Lord Lionel Robbins, famous for defining economics and for utilising the scarcity and choice approach, answer this question? Do also think about other alternative ways of approaching this question.Other than this creative and interesting approach, how else could this have been answered? Thank you for reading, and cheers.