1. Understand the Question.
Make sure you understand the essential point behind the question. Try to highlight the important sections of the question.
Q. Examine the macro economic implications of a significant fall in house prices, combined with a simultaneous loosening of Monetary Policy.
In plain English.
- What is effect of falling house prices on Economy?
- What is effect of falling interest rates (loose monetary policy) on economy
In effect there are two distinct parts to this question. It is a valid response, to deal with each separately, before considering both together.
2. Write in Simple sentences.
For clarity of thought, I usually find it is easier for students and as an economist to stick to writing shorter sentences. The main thing is to avoid combining too many ideas into one sentence. If you write in short sentences, it will feel like you are not putting in your full effort; but it is worth remembering that there are no extra marks for a Shakespearian grasp of English. (at least in Economics Exams)
Look at this response to a question:
Q. What is the impact of higher interest rates?
Higher interest rates increase the cost of borrowing. As a result, those with mortgages will have lower disposable income. Also, consumers have less incentive to borrow and spend on credit cards. Therefore consumption will be lower. This fall in consumption will cause a fall in Aggregate Demand, and therefore lead to lower economic growth. A fall in AD will also reduce inflation. (draw diagram)
I could have combined 1 or 2 sentences together, but here I wanted to show that short sentences can aid clarity of thought. Nothing is wasted in the above example. It is also helpful when sticking to tricky word counts 🙂
Answer the Question.
Quite frequently, when marking economic essays, you see a candidate who has a reasonable knowledge of economics, but unfortunately does not answer the question. Therefore, as a result, they can get zero for a question. It may seem harsh, but if you don’t answer the question, the examiner can’t give any marks.
At the end of each paragraph you can ask yourself; how does this paragraph answer the question? If necessary, you can write a one-sentence summary, which directly answers the question. Don’t wait to the end of the essay to realise you have answered a different question.
Discuss the impact of EURO membership on UK fiscal and monetary policy?
Most students will have revised for a question on: The Benefits and Costs of the EURO. Therefore, as soon as they see the EURO in the title, they put down all their notes on the benefits and costs of the EURO. However, this question is quite specific; it only wishes to know the impact on fiscal and monetary policy.
The “joke” goes, put 10 economists in a room and you will get 11 different answers. Why? you may ask. The nature of economics is that quite often there is no “right” answer. It is important that we always consider other points of view, and discuss various different, potential outcomes. This is what we mean by evaluation.
The effect of raising interest rates will reduce consumer spending.
- However, if confidence is high, higher interest rates may not actually discourage consumer spending.
If the economy is close to full capacity a rise in interest rates may reduce inflation but not reduce growth.
- However, if there is already a slowdown in the economy, rising interest rates may cause a recession.