Economics in the News (17-05): Ten ways to improve evaluation



Economics in the News (17-05): Ten ways to improve evaluation

Wednesday, May 17, 2006 | |

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|What is evaluation? |

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|Evaluation is about making critical judgements and coming to reasoned conclusions on the basis of the evidence that you have in |

|front of you. |

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|Strong evaluative answers use supporting evidence to justify an argument. Some might be found in the stimulus material that |

|accompanies a data response question. Frequently the evidence can come from your own economic knowledge and awareness on the |

|basis that you have studied a subject for nearly two years. Justifying an argument always carries more marks than making the |

|argument since stating an argument is a relatively simple task. |

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|Download the PowerPoint file using the link at the bottom of the blog text |

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|Examples of command words in a question that require or invite evaluation |

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|Evaluate – e.g. compare a number of possible views about an economic problem or an issue and come to a reasoned conclusion about|

|which view holds most weight |

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|E.g. evaluate the record of the Bank of England since it was made independent of government in May 1997. |

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|Assess - analyse an economic issue and then weigh up the relative importance of different strands |

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|E.g. assess the possible effects of a rise in the external value of the pound against the currencies of our major trading |

|partners |

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|Do you think – a question that invites a personal response to a question but where the highest marks are awarded for good |

|analysis backed up with reasoned argument and supporting evidence? |

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|E.g. do you think that a national system of road pricing should be introduced for Britain’s motorway network? |

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|Discuss – a question that prompts you to provide and then compare a range of possible views about an issue or a problem. |

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|E.g. discuss the advantages and disadvantages of introducing a national minimum wage into the UK labour market |

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|Critically analyse the problems facing UK manufacturing industry in today’ global economy |

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|To what extent – again a question that invites quite a broad analysis and discussion and in particular a judgement on the |

|relative importance of something or the relative merits / de-merits of a policy |

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|E.g. to what extent should a government operate a high budget deficit to stimulate economic growth? |

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|Ten strategies for improving evaluation skills in data response and essay questions |

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|1.      Make good use of your final paragraph |

|2.      Look for key stem words in the question – and build some of your evaluation around this |

|3.      Put an economic event, a trend or a government policy decision into a wider context |

|4.      Be familiar with different schools of thought |

|5.      Be aware that a singular economic event never happens in isolation |

|6.      Question the reliability of the data you have been given (especially in data questions) |

|7.      Draw on your wider knowledge to provide supporting evidence and examples |

|8.      Consider both short term and longer term consequences (they are not always the same) |

|9.      Think about what might happen to your arguments if you drop the “ceteris paribus” assumption |

|10.  Try to challenge views and statements – try to question pre-conceived ideas, turn statements around, consider that some |

|statements are merely fallacies designed to fool the lumpen-economists! Don’t accept what you are being told at face value. |

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|Economics is rather like a jigsaw, if you do enough reading, thinking and revision, eventually the pieces really start to fit |

|together and, finally, you can see the whole (bigger) picture |

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|Make good use of your final paragraph |

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|·         Try to avoid a simple summary of points that have already been made. This scores no extra marks and is a waste of |

|scarce exam time. |

|·         Seek to come to a reasoned conclusion – e.g. selecting your main argument and then justifying it. You may not want to |

|come to a firm definitive conclusion (that is fine) but reach a degree of closure in your answer. |

|·         Perhaps look forward, e.g. is it too early to come to a definitive conclusion? “It is too early to say”! |

|·         If you are really pushed for time, add in some final evaluation points as bullets. |

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|Look for key stem words in the question – and build some of your evaluation around this |

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|Essay question: |

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|“Evaluate the view that the government should give financial assistance to firms producing cars in the UK to increase their |

|competitiveness.” |

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|a.       What does financial assistance mean? |

|b.      What different forms might it take? Subsidies, tax breaks? Investment grants? |

|c.       Draw on recent examples of occasions when financial assistance has been asked for or has been forthcoming. |

|d.      What does competitiveness mean? It is a concept with more than one meaning. |

|e.       How might financial assistance contribute to improving competitiveness? |

|f.       How might financial assistance have the opposite effect? |

|g.      Which firms might be offered financial help? |

|h.      Who are the stakeholders involved in such decisions? |

|i.        Who gains and who loses in the medium term from state aid? |

|j.        Should the state provide aid to financially distressed companies? |

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|Data response (final) question |

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|“Using the data and your economic knowledge, assess the extent to which interest rate cuts are likely to improve the performance|

|of economies such as the USA and the UK” |

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|a.       Your answer will need to consider what the “performance of economies” means – i.e. which real economic variables are |

|part of the overall performance issue? |

|a.       Short term performance? |

|b.      Longer term economic success (hinting at supply-side indicators) |

|b.      Demand-side effects of interest rate cuts |

|c.       Supply-side effects of interest rate reductions |

|d.      Are interest rate cuts on their own sufficient to achieve a sustained improvement? |

|e.       What are the economic risks from cutting interest rates? |

|f.       When might interest rate reductions have little effect? (e.g. consider the liquidity trap) |

|g.      Have lower interest rates actually benefited the performance of countries such as the United States and the United |

|Kingdom? – draw on recent macroeconomic evidence |

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|Data response (final) question |

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|“Using the data and your economic knowledge, evaluate the consequences of a sustained, high rate of economic growth.” |

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|a.       What does the word sustained growth mean? |

|b.      Is there a difference between sustained growth and sustainable growth? |

|c.       What does a fast rate of growth mean? |

|d.      Are the two compatible? To what extent might a high rate of economic growth not be sustained or sustainable in the long |

|term |

|e.       Distinguish between the short term and longer term consequences of high rates of growth |

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|Keep focussed on those stem words – so that your answer does not drift into irrelevance |

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|Put an economic event, a trend or a policy into a wider context |

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|This is all about putting something into a bigger picture, recognising that we live in an interdependent, global world with all |

|sorts of interesting and often complex inter-relationships. |

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|For example |

|a.       Linking a discussion about the national minimum wage with the importance of businesses being competitive within a |

|global economy |

|b.      Considering the effects of a rise in government spending on transport infrastructure in terms of the UK’s ability to |

|trade and compete within the European Single Market |

|c.       Discussing options for reforming the CAP and linking to wider environmental concerns and prospects for progress in |

|global trade talks |

|d.      Considering the macroeconomic effects of a microeconomic policy e.g. longer term macroeconomic effects of the |

|introduction of a ban on smoking in public places |

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|Be familiar with different schools of thought |

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|E.g. |

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|Keynesian versus neo-classical economists on the roles that govt intervention can play in managing aggregate demand |

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|Free-market trade supporters versus economists who believe that protectionism is justified |

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|Economists who believe in progressive taxation contrasted with those who are advocating flat rate tax systems |

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|No single school of thought has all of the answers – most have approaches that are deeply normative – containing value |

|judgements about what the world or economy should be. |

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|Be aware that a singular economic event never happens in isolation |

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|E.g. |

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|A rise in the world price of oil is an external shock to a country but it happens in the context of other developments in the |

|world economy, some of these other developments might amplify the effects of more expensive oil whereas other events might |

|lessen the impact |

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|Exchange rate changes |

|Changes to monetary and fiscal policy |

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|The key point is that other events happening in the macroeconomy can alter the magnitude of the effects of an economic shock. |

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|Consider the possible second round and third round effects of a “shock” |

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|E.g. A rise in commodity prices – higher cost-push inflation – wage demands may follow price rises – this impacts on business |

|profits – affects planned investment and employment |

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|The second and third round effects may have an asymmetric effect on different parts of the economy or differential impacts |

|within a group of countries. |

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|Question the reliability of the data you have been given (for data questions) |

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|This is especially true in data questions and in the Unit 4 paper on the European Union where you can raise issues over data |

|which is |

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|(i)                 Out of date (although there are time lags between an exam paper being set and you sitting it!) |

|(ii)               Incomplete or partial, additional information might help you come to a stronger conclusion |

|(iii)             From sources that show evidence of bias (this is especially important in Unit 4 but you should also be on the |

|lookout for it in the other two exams, not least in the compulsory data response questions.) |

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|Draw on your wider knowledge to provide supporting evidence and examples |

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|What happens in theory rarely matches what happens in reality! If you are well-read and have kept up to date with developments |

|in the UK and international economy, then you are much better placed to back up your arguments with concrete evidence. |

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|“An economist is someone who sees something working perfectly well in practice and wonders if it will work just as well in |

|theory.” |

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|I consider the use of wider knowledge to be the key to really good answers at A2 level. Demonstrate in your writing that you |

|have studied a subject, not just turned up to the lessons. Be careful not to overload the reader (examiner) with a barrage of |

|statistics or examples, but judicious use of up to date information can add considerable weight to your answers, |

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|Consider short term and longer term consequences (they are not always the same) |

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|Economic events happen at moments in time, but the consequences can take considerably longer to show through |

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|Time lags between changes in one variable affecting another |

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|E.g. changes in interest rates or fluctuations in business sentiment |

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|Short term effects of an exchange rate change (possible J curve arising from a depreciation) and the longer term effects on |

|output, employment, investment and living standards |

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|The time lags for supply-side policy changes can be lengthy – often measured in years. |

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|E.g. the longer term effects and implications of trade union reforms, of joining the European Union, of enlarging the EU, of |

|joining the single currency, or not joining the Euro! |

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|Think beyond the short term and the immediate! The further forward you project, the less certain you can be about the outcome, |

|but some of the most important effects of an economic change can only be viewed some years hence. |

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|What might happen to your arguments if you drop the “ceteris paribus” assumption? |

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|Individuals, businesses and governments do not always act rationally – indeed how can they? The behaviour of economic agents |

|cannot mirror the neat precision of an economic textbook remember the “law of unintended consequences.” |

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|Everything else is rarely equal! |

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|Try to challenge views and statements |

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|Consider some of these statements. It might be worth you going through some of them and discussing and sharing your thoughts on |

|them. |

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|(i)                 Economic theory has little to contribute if people do not behave optimally |

|(ii)               A balance of payments deficit is an economic problem |

|(iii)             Fixed exchange rates are more stable than floating exchange rates |

|(iv)             Cutting interest rates to zero will always boost demand in the economy |

|(v)               Higher taxes on cigarettes will always lead to more tax revenue |

|(vi)             Economic growth inevitably damages the environment |

|(vii)           The activities of ticket touts are evidence of market failure and should be banned. |

|(viii)         Rising levels of obesity is clear evidence of market failure |

|(ix)             New technologies create extra unemployment because capital replaces labour |

|(x)               Labour market flexibility is needed to make a country more competitive |

|(xi)             In the long run, a higher minimum wage will cost jobs |

|(xii)           Government borrowing should be controlled by the “Golden Rule” principle |

|(xiii)         Trade unions can only win higher wages at the expense of falling employment |

|(xiv)         Companies that make excess profits should be taxed more heavily |

|(xv)           Capital investment is a good thing and should be encouraged by government policy |

|(xvi)         Companies will tend to choose locations for production where wage costs are lowest |

|(xvii)       Building motorways is an effective way of reducing congestion on major roads |

|(xviii)     Pure monopoly exists |

|(xix)         £2 million worth of output from a hi-tech manufacturing industry is worth more than £2 million worth of output |

|from McDonald’s. |

|(xx)           The British economy should become as productive and competitive as it can |

|(xxi)         The rise in demand for gambling services is bad for the economy |

|(xxii)       Paying workers higher wages increases a firms’ costs |

|(xxiii)     There is no such thing as a “population time-bomb” or a “pensions time-bomb” or an “environmental time-bomb”. |

|Time-bombs never explode! |

|(xxiv)     Despite globalisation, global poverty rates among children are continuing to rise |

|(xxv)       The higher the level of exports, the better the performance of an economy |

|(xxvi)     Innovation means ever greater use of resources, disposability of goods, consumer spending and social envy. There is |

|therefore a case for suppressing innovation |

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|Putting Evaluation into Your Answers |

|Monday, March 27, 2006 |

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|Adopting a balanced approach |

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|“The higher levels of marks will elude the candidate if there is no attempt to include some explicit evaluation.” (AQA Report, |

|June 2004) |

|Examiners will always reward students who adopt a balanced approach and those who try to reason out and explain their arguments|

|i.e. they demonstrate an awareness of different points of view / different schools of thought in Economics |

|Examples include: |

|•         Monetarist versus Keynesian views on the impact of fiscal and monetary policies as instruments of demand management. |

|•         Polluter-pays principle versus tradable-permits versus regulation as means of reducing environmental pollution. |

|•         Economists who believe that fixed exchange rates are more effective than allowing a currency to float. |

|•         Competing views on the relationship between economic growth and its long-term environmental impact. |

|•         Different schools of thought on the benefits of competition versus regulation in a market. |

|Discussion of competing theories leads naturally into good evaluation – For example, you may be asked to evaluate how well the |

|free-market performs, and the circumstances in which there may be a case for non-market (state) provision of goods or services. |

|Putting things into context as a way of evaluating |

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|High level students seem to have a happy knack of putting issues into a clear context and this certainly counts as evaluation! |

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|Consider the theory of perfect competition. On the surface an extremely limiting theory because the assumptions on which it is |

|based are so restrictive. There may be better theories more appropriate to real world markets such as contestable markets |

|theory? But then again, understanding a world that might come close to perfect competition does have its uses. For example being|

|able to understand why the foreign exchange markets are very near to pure competition is a useful context to have. |

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|In macroeconomics exams, high marks are available for students who have a good working knowledge and understanding of the recent|

|performance of the British economy, but who can also put that performance into context, for example comparing and contrasting |

|the UK with other European Union countries. Or being able to put the UK into a much wider global context. |

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|Commenting on the significance of something |

|Evaluating the significance of something – ask the question - does it actually matter? |

|What are the possible implications of an event such as an external economic shock? |

|Are the effects likely to be transitory (short term) or will they have important longer-term consequences? |

|•         E.g. The significance of a short term change in the exchange rate or in interest rates |

|•         The possible impact of rising global oil prices on developed and developing countries |

|•         Remember that countries will be affected in different ways to the same “shock” e.g. higher oil prices will have |

|different effects for oil importers and oil exporters. There are asymmetries in terms of the effect of a change on different |

|groups, businesses, regions and countries |

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|The Law of Unintended Consequences |

|Evaluation is enhanced if you emphasise that government policy changes might have unintended effects. |

|•         Possible government failure from policies designed to correct for market failure |

|•         Government intervention to stabilise prices and producer incomes in agricultural markets may cause long term problems |

|of over supply / loss of economic efficiency. Consumers and producers do not always behave in a conventional textbook way. |

|Misguided and unsuccessful intervention then leads to problems of government failure, and provides the case for market forces |

|rather than intervention in determining the allocation of resources. E.g. free provision may lead to over-provision of a merit |

|good and consumers under-valuing the service provided. |

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|Questioning the assumptions upon which theory is based |

|Questioning the assumptions on which a piece of economic reasoning stands |

|For example |

|•         The realism of the assumptions required for economic efficiency in perfectly competitive markets. |

|•         The assumption that export prices always rise and export volumes fall when the exchange rate rises. |

|•         Assumptions about how taxpayers will respond if the government cuts taxes in order to give a fiscal stimulus to the |

|economy. |

|If the assumptions change, then your analysis may also change – and this can be developed in your answer. |

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|Trying to reach reasoned conclusions |

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|Coming to a reasoned conclusion on the basis of the evidence / supporting examples that you have used |

|Often the conclusion may be that there is insufficient evidence or that not enough time has elapsed to reach a convincing |

|judgement – for example in evaluating the economic effects of the congestion charge or the national minimum wage |

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|Weighting the strength or weakness of arguments |

|Evaluation also involves stating which arguments you believe to be most important and why |

|•         Looking at the advantages and disadvantages of policies |

|•         For example: |

|o        Electronic road pricing as a means of reducing externalities from congestion compared to other policy options. |

|o        Ranking different options for reform of the European Union Common Agricultural Policy. |

|The different options that a government has if it wants to improve the incentives of low paid workers in the labour market |

|(examples include the minimum wage; changes to the tax system and reforms to welfare benefits). |

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|Stressing the importance of the time dimension |

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|How long does the multiplier take to work or how long does the transmission mechanism of changes in interest rates take to work |

|through the economy? The time dimension is important, for example, interest rate changes as part of a series of changes can only|

|be properly assessed over a period of time.  In economics, there are no isolated variables.  How do you judge isolated variables|

|in the long-run when there are so many other variables?  Can any one multiplier effect ever be calculated? |

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|Use relevant evidence and examples |

|Use relevant supporting evidence in your arguments. The examiners will always reward reference to recent developments in |

|particular industries and markets, and to developments in both the domestic and international economy. Exam questions will often|

|say “using the data and your own knowledge”, this is a clear signpost that the exam requires you to bring into your discussion |

|some ideas and evidence drawn from your own reading. |

|Before the exam make sure you are armed with some of the key statistics on the UK and international economy – particularly |

|useful for the macroeconomic essay questions (e.g. on unemployment, inflation, economic growth and the balance of payments). |

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|Useful evaluation phrases to use in answers |

|Some useful phrases to use to help the examiner! |

|•         The arguments for and against “X” are finely balanced…. |

|•         A change in X might cause a change in Y however this depends on Z being held constant….. |

|•         A possible disadvantage of this strategy / policy is that … |

|•         The relationship between S and T depends on certain assumptions which may not be the case in reality….. |

|•         The effects of a change in “A” depend on the price elasticity of demand and supply….. and if the elasticity changes, |

|then the analysis can change |

|•         The argument that X causes Y is actually contradicted by recent evidence which shows that…. |

|•         Although a fall in M should lead to a rise in N, but time lags mean that policy changes take time to have their full |

|effect….. |

|•         Although there are short term effects arising from the introduction of M, the longer-term impact might be more |

|important |

|•         In conclusion, there are several policy options available to the government. I would argue that policy X is likely to |

|be most effective in achieving the government’s objective in the long run. This is because ………….. |

|•         There may be a potential conflict involved with this policy because …… |

|•         To conclude I would argue that … |

|•         The weight of my arguments suggests that policy X is the one that the government should consider first because …. |

|Good evaluation may be consistent with the view that in economics, everything depends on everything else! |

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