Genies,
That's what it takes to get that A or A*.
Did you know one of the main reasons why students often fail at answering questions is simply because they don’t read the question properly? 🤯
It's strange, right?
You’d think it was more complicated than that, but
I'm here to tell you that it’s not.
Let’s break it down:
Question: Evaluate the impact of having high inflation on the UK economy.
Don’t do this:
"High inflation leads to high interest rates, and the Bank of England has to increase rates to manage this inflation. This could reduce consumer spending and borrowing."
See the issue?
You’ve gone straight into discussing a policy to reduce inflation rather than evaluating the impact of high inflation itself.
Instead, do this:
"High inflation erodes the purchasing power of consumers, which means that the value of money declines, and consumers can buy less with the same amount of income. As the prices of goods and services increase, consumers' real income effectively decreases, leaving them with less disposable income after purchasing necessities.
This reduction in purchasing power leads to reduced consumption, as consumers are forced to cut back on non-essential items and services. They may also delay or forego significant purchases, such as buying a car or taking a holiday, in order to manage their reduced spending power.
As consumption decreases, businesses experience lower demand for their products and services. This drop in demand can lead to reduced production levels, as businesses adjust to the lower sales volumes. Lower production levels can result in businesses reducing their workforce, cutting back on hours, or halting investment in new projects, which further suppresses economic activity.
The overall decline in consumption and production has a direct impact on economic growth, as consumer spending is a significant component of aggregate demand. With less spending and investment taking place in the economy, the aggregate demand curve may shift to the left, indicating a lower level of output and economic activity.
In the long run, sustained high inflation can lead to a prolonged period of economic stagnation, where the economy grows at a slower rate than its potential, or even contracts. This is because the ongoing erosion of purchasing power undermines consumer confidence, which is vital for sustaining economic growth".
Another example:
Question: Discuss the possible consequences of a significant increase in government spending.
Don’t do this:
"The government might need to increase taxes to fund the additional spending, which could lead to a reduction in disposable income for consumers."
Here, you’re jumping into a potential solution rather than addressing the direct consequences of increased spending.
Instead, do this:
"A significant increase in government spending can lead to a multiplier effect, where the initial injection of funds into the economy—such as through infrastructure projects, public services, or welfare programs—creates an immediate increase in demand for goods and services.
This initial increase in demand boosts the income of businesses and workers who are directly involved in providing these goods and services. As these businesses and workers experience higher income, they are likely to increase their own consumption and investment. For example, workers who receive more income may spend more on consumer goods, while businesses might invest in expanding production to meet the rising demand.
This second round of increased consumption and investment further amplifies the initial boost to demand. As businesses see higher sales, they may hire more workers, leading to a further increase in income and consumption. Similarly, increased business investment may create new jobs and drive further economic activity.
The process continues as each subsequent round of spending generates additional income and demand, magnifying the impact of the initial government spending. This ripple effect through the economy means that the total increase in economic output is greater than the original amount spent by the government.
This cumulative effect is known as the multiplier effect, where each pound spent by the government leads to a more significant increase in overall economic output than the initial spending amount. As a result, the overall economic output can see a substantial boost, supporting growth, reducing unemployment, and enhancing economic stability".
And another:
Question: Evaluate the impact of a rise in Corporation Tax on UK businesses.
Don’t do this:
"The government might use the additional revenue to increase public spending on infrastructure, which could benefit businesses indirectly."
Again, this doesn’t address the direct impact on businesses.
Instead, do this:
"A rise in Corporation Tax reduces the post-tax profits of UK businesses. When businesses face higher tax liabilities, a larger portion of their profits is taken by the government, leaving them with less disposable income.
With reduced post-tax profits, businesses have fewer funds available to reinvest back into the business. Reinvestment is crucial for growth, as it often finances capital expenditures such as purchasing new equipment, upgrading technology, expanding facilities, or entering new markets.
This decrease in available funds for reinvestment could lead to lower capital expenditure on new projects. Businesses might delay or cancel planned expansions or innovations due to the constrained budget, limiting their ability to grow and improve productivity.
Innovation may also suffer, as research and development (R&D) budgets are often among the first areas to be cut when businesses face financial pressure. Without sufficient investment in innovation, businesses may fall behind in developing new products or services, making them less competitive in both domestic and global markets.
Ultimately, the reduced capital expenditure and slower pace of innovation can hinder business growth. As businesses struggle to expand and innovate, their competitiveness in the global market may decline, making it harder for them to compete with international firms that are not facing similar tax burdens.
This could lead to a slowdown in overall economic growth, as businesses are key drivers of economic activity through job creation, productivity improvements, and contributions to national income. A less competitive business environment could also deter foreign investment, further compounding the negative impact on the UK economy.
The key takeaway?
Always read the question carefully and ensure your answer directly addresses what is being asked.
It’s not about how much you write, but about how well you answer the question.
Make every point count.
Cheers to nailing those exams!
Emre 🧞♂️
