In January 2018 tax reductions were introduced in the US, and the Federal Reserve Bank (the US central bank) announced it would raise interest rates later in the year. Discuss how these policies may cause conflicts for a government in trying to achieve its macroeconomic aims.

Mark scheme

Marking points from the official mark scheme (May/June 2020). The mark or mark type is shown in brackets.

1. The major macroeconomic aims: economic growth, inflation, unemployment, balance of payments and development. The impact of a reduction in taxation on a government's ability to achieve its aims through increases in consumption/investment/government borrowing and the impact of higher interest rates on consumption/investment/exchange rate. Reference to the multiplier effect.
2. L4 (18-25 marks): For an accurate discussion based on the ability to achieve least 3 aims simultaneously and the development of both the change in taxation or the change in interest rates on the ability to achieve the aims limited reference to the two policies. . A conclusion is drawn. (Max 21 no conclusion).
3. L3 (14-17 marks): For an discussion based on the ability to achieve least 3 aims simultaneously and good development of either the change in taxation or the change in interest rates on the ability to achieve the aims. A limited conclusion otherwise max 16
4. L2 (10-13 marks): For an accurate explanation based on the ability to achieve least 3 aims simultaneously and limited reference to the two policies.
5. L1 (1-9 marks): For an answer which shows some knowledge but does not indicate that the question has been fully grasped, or where the answer contains irrelevancies and errors of theory.