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  • Welcome to the CP Subject Centre
  • Faria Education Group
  • Core
    • Service Learning
    • Language Development
    • Reflective Project
    • Personal and Professional Skills
  • Career-related Study
  • Studies in language and literature
    • Language and Literature
      • Aims & Objectives
      • Syllabus
        • Area of Exploration - Readers, Writers and Texts
        • Area of Exploration - Time and Space
        • Area of Exploration - Intertextuality: Connecting Texts
        • Development of Linguistic Skills
        • Conceptual Understanding
        • Non-Literary Texts
      • Assessment
    • Literature
      • Aims and Objectives
      • Syllabus
        • Areas of Exploration
        • Development of Linguistic Skills
        • Conceptual Understanding
      • Assessment
    • Classical Languages (Last Assessment 2023)
      • Aims & Objectives
      • Syllabus
        • Part 1: Study of Language
        • Part 2: Study of Literature
        • Part 3: Individual study
      • Assessment
    • Classical Languages (First Assessment 2024)
    • Literature and Performance (First Assessment 2024)
  • Language acquisition
    • Language Ab Initio
      • Aims & Objectives
      • Syllabus
        • Identities
        • Experiences
        • Human Ingenuity
        • Social Organization
        • Sharing the Planet
        • Texts
      • Assessment
    • Language B
      • Aims & Objectives
      • Syllabus
        • Identities
        • Experiences
        • Human Ingenuitiy
        • Social Organization
        • Sharing the Planet
        • Texts
      • Assessment
  • Individuals and societies
    • Business Management (Last Assessment 2023)
      • Aims & Objectives
      • Syllabus
        • Unit 1: Business Organization and Environment
        • Unit 2: Human Resource Management
        • Unit 3: Finance and Accounts
        • Unit 4: Marketing
        • Unit 5: Operations Management
      • Assessment
    • Business Management (First Assessment 2024)
    • Digital Society
    • Economics
      • Aims & Objectives
      • Syllabus
        • Unit 1: Introduction to Economics
        • Unit 2: Microeconomics
          • Real-world issue 1
          • Real-world issue 2
        • Unit 3: Macroeconomics
          • Real-world issue 1
          • Real-world issue 2
        • Unit 4: The Global Economy
          • Real-world issue 1
          • Real-world issue 2
      • Assessment
    • Geography
      • Aims & Objectives
      • Syllabus
        • Part one: Geographic themes (SL and HL options)
          • Option A: Freshwater
          • Option B: Oceans and coastal margins
          • Option C: Extreme environments
          • Option D: Geophysical hazards
          • Option E: Leisure, tourism and sport
          • Option F: Food and health
          • Option G: Urban environments
        • Part two: Geographic perspectives - global change (SL and HL core)
          • Unit 1: Changing population
          • Unit 2: Global climate - vulnerability and resilience
          • Unit 3: Global resource consumption and security
        • Part two: Geographic perspectives - global change (HL core extension)
          • Unit 4: Power, places and networks
          • Unit 5: Human development and diversity
          • Unit 6: Global risks and resilience
      • Assessment
    • Global Politics
      • Aims & Objectives
      • Syllabus
        • Engagement Activity
        • Core
        • Additional Higher Level
      • Assessment
    • History
      • Aims & Objectives
      • Syllabus
        • Prescribed Subjects
        • World History Topics
        • HL Options: Depth Studies - History of Africa and the Middle East
        • HL Options: Depth Studies - History of the Americas
        • HL Options: Depth Studies - History of Asia and Oceania
        • HL Options: Depth Studies - History of Europe
      • Assessment
    • Information Technology in a Global Society
      • Aims & Objectives
      • Syllabus
        • Strand 1: Social and Ethical Significance
        • Strand 2: Application to Specific Scenarios
        • Strand 3: IT Systems
        • The Project (practical application of IT skills)
      • Assessment
    • Philosophy
      • Aims & Objectives
      • Syllabus
        • Prescribed Texts
        • Core
        • Additional Higher Level
        • Options
      • Assessment
    • Psychology
      • Aims & Objectives
      • Syllabus
        • Core
          • Biological approach to understanding behaviour
          • Cognitive approach to understanding behaviour
          • Sociocultural approach to understanding behaviour
          • Approaches to researching behaviour
        • Options
          • Abnormal psychology
          • Developmental psychology
          • Health psychology
          • Psychology of human relationships
      • Assessment
    • Social and Cultural Anthropology
      • Aims & Objectives
      • Syllabus
        • Part 1: Engaging with Anthropology
          • The language of anthropology
          • The practice of anthropology
          • Anthropological thinking
        • Part 2: Engaging with Ethnography
          • Group 1
          • Group 2
          • Group 3
        • Part 3: Engaging with Anthropological Practice
      • Assessment
    • World Religions
      • Aims & Objectives
      • Syllabus
        • Part 1: Introduction to World Religions
        • Part 2: In-depth Studies
        • Part 3: Internal Assessment
      • Assessment
  • Sciences
    • Biology (FA 2025)
    • Biology (LA 2024)
      • Aims & Objectives
      • Syllabus
        • Core
          • 1. Cell biology
          • 2. Molecular biology
          • 3. Genetics
          • 4. Ecology
          • 5. Evolution and biodiversity
          • 6. Human physiology
        • Additional Higher Level
          • 7. Nucleic acids
          • 8. Metabolism, cell respiration and photosynthesis
          • 9. Plant biology
          • 10. Genetics and evolution
          • 11. Animal physiology
        • Options
          • Option A: Neurobiology and behaviour
          • Option B: Biotechnology and bioinformatics
          • Option C: Ecology and conservation
          • Option D: Human physiology
      • Assessment
    • Chemistry (FA 2025)
    • Chemistry (LA 2024)
      • Aims & Objectives
      • Syllabus
        • Core
          • 1. Stoichiometric relationships
          • 2. Atomic structure
          • 3. Periodicity
          • 4. Chemical bonding and structure
          • 5. Energetics/thermochemistry
          • 6. Chemical kinetics
          • 7. Equilibrium
          • 8. Acids and bases
          • 9. Redox processes
          • 10. Organic chemistry
          • 11. Measurement and data processing
        • Additional Higher Level
          • 12. Atomic structure
          • 13. The periodic table - the transition metals
          • 14. Chemical bonding and structure
          • 15. Energetics/thermochemistry
          • 16. Chemical kinetics
          • 17. Equilibrium
          • 18. Acids and bases
          • 19. Redox processes
          • 20. Organic chemistry
          • 21. Measurement and analysis
        • Options
          • A. Materials
          • B. Biochemistry
          • C. Energy
          • D. Medicinal chemistry
      • Assessment
    • Computer Science (FA 2025)
    • Computer Science (LA 2024)
      • Aims & Objectives
      • Syllabus
        • Core
          • Topic 1 - System fundamentals
          • Topic 2 - Computer organization
          • Topic 3 - Networks
          • Topic 4 - Computational thinking, problem-solving and programming
        • Additional Higher Level
          • Topic 5 - Abstract data structures
          • Topic 6 - Resource management
          • Topic 7 - Control
        • Options
          • A - Databases
          • B - Modelling and simulation
          • C - Web science
          • D - Object-oriented programming
      • Assessment
    • Design Technology
      • Aims & Objectives
      • Syllabus
        • Core
          • 1. Human factors and ergonomics
          • 2. Resource management and sustainable production
          • 3. Modelling
          • 4. Final production
          • 5. Innovation and design
          • 6. Classic design
        • Additional Higher Level
          • 7. User-centred design (UCD)
          • 8. Sustainability
          • 9. Innovation and markets
          • 10. Commercial production
      • Assessment
    • Nature of Science
      • Aims & Objectives
      • Syllabus
        • Introduction
        • Part A - Concepts
        • Part B - The Quest for Understanding
        • Part C - The Impact of Science
        • Part D - Challenges and the Future
      • Assessment
    • Physics (FA 2025)
    • Physics (LA 2024)
      • Aims & Objectives
      • Syllabus
        • Core
          • 1. Measurements and uncertainties
          • 2. Mechanics
          • 3. Thermal physics
          • 4. Waves
          • 5. Electricity and magnetism
          • 6. Circular motion and gravitation
          • 7. Atomic, nuclear and particle physics
          • 8. Energy production
        • Additional Higher Level
          • 9. Wave phenomena
          • 10. Fields
          • 11. Electromagnetic induction
          • 12. Quantum and nuclear physics
        • Options
          • A. Relativity
          • B. Engineering physics
          • C. Imaging
          • D. Astrophysics
      • Assessment
    • Sports, Exercise and Health Science
      • Aims & Objectives
      • Syllabus
        • Core
          • Topic 1: Anatomy
          • Topic 2: Exercise physiology
          • Topic 3: Energy systems
          • Topic 4: Movement analysis
          • Topic 5: Skill in sports
          • Topic 6: Measurement and evaluation of human performance
        • Additional Higher Level
          • Topic 7: Further anatomy
          • Topic 8: The endocrine system
          • Topic 9: Fatigue
          • Topic 10: Friction and drag
          • Topic 11: Skill acquisition and analysis
          • Topic 12: Genetics and athletic performance
          • Topic 13: Exercise and immunity
        • Options
          • Option A: Optimizing physiological performance
          • Option B: Psychology of sports
          • Option C: Physical activity and health
          • Option D: Nutrition for sports, exercise and health
      • Assessment
  • Mathematics
    • Mathematics: analysis and approaches
      • Aims & Objectives
      • Syllabus
        • Topic 1: Numbers and Algebra
        • Topic 2: Functions
        • Topic 3: Geometry and Trigonometry
        • Topic 4: Statistics and Probability
        • Topic 5: Calculus
      • Assessment
    • Mathematics: applications and interpretation
      • Aims & Objectives
      • Syllabus
        • Topic 1: Number and Algebra
        • Topic 2: Functions
        • Topic 3: Geometry and Trigonometry
        • Topic 4: Statistics and Probability
        • Topic 5: Calculus
      • Assessment
  • The arts
    • Dance
      • Aims & Objectives
      • Syllabus
        • Composition and Analysis
        • World Dance Studies
        • Performance
      • Assessment
    • Film
      • Aims & Objectives
      • Syllabus
        • Reading Film
        • Contextualizing Film
        • Exploring Film Production Roles
        • Collaboratively Producing Film (HL only)
      • Assessment
    • Music
      • Aims & Objectives
      • Syllabus
        • Areas of Inquiry
        • Contexts
        • Musical Processes
        • Musical Roles
        • Exploring Music in Context
        • Experimenting with Music
        • Presenting Music
      • Assessment
    • Theatre (Last Assessment 2023)
      • Aims & Objectives
      • Syllabus
        • Theatre in Context
        • Theatre Processes
        • Presenting Theatre
      • Assessment
    • Theatre (First assessment 2024)
    • Visual Arts
      • Aims & Objectives
      • Syllabus
        • Visual Arts in Context
        • Visual Arts Methods
        • Communicating Visual Arts
        • The Visual Arts Journal
        • Art-making Forms
        • Research
      • Assessment
  • Interdisciplinary courses
    • Literature and Performance
      • Aims and Objectives
      • Syllabus
        • Part 1: Critical Study of Texts
        • Part 2: Exploration of the Chose Approach to the Text
        • Part 3: Realization of Texts in Performance
        • Prescribed Literature in Translation
      • Assessment
    • Environmental Systems & Societies
      • Aims & Objectives
      • Syllabus
        • Topic 1: Foundations of environmental systems and societies
        • Topic 2: Ecosystems and ecology
        • Topic 3: Biodiversity and conservation
        • Topic 4: Water and aquatic food production systems and societies
        • Topic 5: Soil systems and terrestrial food production systems and societies
        • Topic 6: Atmospheric systems and societies
        • Topic 7: Climate change and energy production
        • Topic 8: Human systems and resource use
      • Assessment
  • School-based syllabuses
    • Art History
      • Aims & Objectives
      • Syllabus
        • Topic 1: The Art and Architecture of Ancient Greece
        • Topic 2: Rome - Republic and Empire
        • Topic 3: The Middle Ages
        • Topic 4: Romanesque and Gothic Art and Architecture
        • Topic 5: The Art of the Renaissance
        • Topic 6: The Baroque Age - Art and the Architecture of 17th-century Europe
        • Topic 7: The 'Age of Reason' to 'Romanticism'
        • Topic 8: Experiments in the 19th- and 20th-century Art
      • Assessment
    • Astronomy
      • Aims & Objectives
      • Syllabus
        • Topic 1: The Stars
        • Topic 2: The Planets
        • Topic 3: Galaxies
        • Topic 4: Cosmology
      • Assessment
    • Brazilian Social Studies
      • Aims & Objectives
      • Syllabus
        • Topic 1: The Construction of Brazilian Geographical Space
        • Topic 2: Brazil in the Globalization Era - Core Topic
        • Topic 3: The Demographic and Urban Dynamics of Contemporary Brazil
        • Topic 4: Environment and Society
        • Topic 5: From Discovery to the End of the Colonial Era (1500-1822)
        • Topic 6: The Monarchical Experience (1822-1889)
        • Topic 7: Early Republican Brazil (1889-1945) - Core Topic
        • Topic 8: Contemporary Brazil (1945 - )
      • Assessment
    • Classical Greek and Roman Studies
      • Aims & Objectives
      • Syllabus
        • Part A - Two Topics from the Following Four Options
        • Part B - Two Topics from the Following Four Options
      • Assessment
    • Food Science and Technology
      • Aims & Objectives
      • Syllabus
        • 1. Nutrition
        • 2. Materials, Component and Their Application
        • 3. Food Quality and Safety
        • 4. Food Process Engineering
      • Assessment
    • Marine Science
      • Aims & Objectives
      • Syllabus
        • Core
          • Topic 1 Origin and Structure of Oceans
          • Topic 2 Dynamics of Earth's Crust
          • Topic 3 Patterns of Water Movement
          • Topic 4 Properties of Ocean Water
          • Topic 5 Life in Oceans
        • Options
          • A. Marine ecosystems and conservation
          • B. Atmosphere, ocean and climate
          • C. Geology of ocean basins
      • Assessment
    • Modern History of Kazakhstan
      • Aims & Objectives
      • Syllabus
        • Topic 1. Kazakhstan at the Beginning of the 20th Century
        • Topic 2. Kazakhstan During the Civil Confrontation (1917-1920)
        • Topic 3. The Formation of the Soviet Union and Kazakhstan (1920-1940)
        • Topic 4. The Great Patriotic War and Kazakhstan (1941-1945)
        • Topic 5. Kazakhstan and the Socialism (1946-1985)
        • Topic 6. Kazakhstan: from Perestroika to independence
      • Assessment
    • Political Thought
      • Aims & Objectives
      • Syllabus
        • Topic 1: Political Thinkers
        • Topic 2: Political Concepts
      • Assessment
    • Turkey in the 20th Century
      • Aims & Objectives
      • Syllabus
        • Turkey at the Beginning of the 20th Century
        • Topic 2: The Foundations of the Turkish Republic 1923-1945
        • Topic 3: The Global Changes Between the World Wars and Their Effect on Turkey 1918-1939
        • Topic 4: Turkey under pressure during World War II
        • Topic 5: Reconstruction, democracy and developments in the region 1945-1985
        • Topic 6: The Effects of Globalization and the Dialogue with Europe 1985-2000
      • Assessment
    • World Arts and Cultures
      • Aims & Objectives
      • Syllabus
        • Part 1: Prescribed Topics
        • Part 2: Intercultural Studies
        • Part 3: Regional Study
      • Assessment
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On this page
  • Real-world issue 2: How do governments manage their economy and how effective are their policies?
  • Conceptual understandings
  • 3.5 Demand management (demand-side policies)—monetary policy
  • 3.6 Demand management—fiscal policy
  • 3.7 Supply-side policies
  • Inquiry—possible areas to explore (not an exhaustive list)
  • Theory of knowledge questions
  1. Individuals and societies
  2. Economics
  3. Syllabus
  4. Unit 3: Macroeconomics

Real-world issue 2

Real-world issue 2: How do governments manage their economy and how effective are their policies?

Conceptual understandings

  • Government intervention attempts to achieve macroeconomic objectives through a choice of policies.

  • Political, economic, social and environmental factors are interdependent and will influence the effectiveness of government policies.

  • Key concepts: scarcity, choice, efficiency, equity, economic well-being, sustainability, change, interdependence, intervention.

3.5 Demand management (demand-side policies)—monetary policy

  • Monetary policy

    • Control of money supply and interest rates by the central bank

  • Goals of monetary policy

    • Low and stable rate of inflation

      • Inflation targeting

    • Low unemployment

    • Reduce business cycle fluctuations

    • Promote a stable economic environment for long-term growth

    • External balance

  • The process of money creation by commercial banks (HL only)

  • Tools of monetary policy (HL only)

    • Open market operations

    • Minimum reserve requirements

    • Changes in the central bank minimum lending rate (base rate/discount rate/refinancing rate changes)

    • Quantitative easing

  • Demand and supply of money—determination of equilibrium interest rates (HL only)

    • Diagram (HL only): showing the determination of equilibrium interest rates

  • Real versus nominal interest rates

    • Calculation: real interest rates from given data

  • Expansionary and contractionary monetary policies to close deflationary/recessionary and inflationary gaps

    • Diagram: AD/AS curves showing expansionary and contractionary monetary policy

  • Effectiveness of monetary policy

    • Constraints on monetary policy, including:

      • limited scope of reducing interest rates, when close to zero

      • low consumer and business confidence

    • Strengths of monetary policy, including:

      • incremental, flexible and easily reversible

      • short time lags

    • Strengths and limitations in promoting growth, low unemployment, and low and stable rate of inflation

3.6 Demand management—fiscal policy

  • Fiscal policy

    • Sources of revenue—direct and indirect taxation, sale of goods and services from state-owned enterprises, sale of government assets

    • Expenditures—current expenditures, capital expenditures, transfer payments

  • Goals of fiscal policy

    • Low and stable inflation

    • Low unemployment

    • Promote a stable economic environment for long-term growth

    • Reduce business cycle fluctuations

    • Equitable distribution of income

    • External balance

  • Expansionary and contractionary fiscal policies in order to close deflationary/recessionary and inflationary gaps

    • Diagram: AD/AS curves showing expansionary and contractionary fiscal policy for both Keynesian and monetarist/new classical schools of thought

  • Keynesian multiplier (HL only)

    • MPC— marginal propensity to consume

    • MPS—marginal propensity to save

    • MPT—marginal propensity to tax

    • MPM—marginal propensity to import

    • Calculation (HL only): Keynesian multiplier

    • Calculation (HL only): the effect on GDP of a change in an injection in investment, government spending or exports, using the Keynesian multiplier

  • Effectiveness of fiscal policy

    • Constraints on fiscal policy, including:

      • political pressure

      • time lags

      • sustainable debt

      • crowding out (HL only)

        • Diagram (HL only): showing the crowding-out effect

    • Strengths of fiscal policy, including:

      • targeting of specific economic sectors

      • government spending effective in deep recession

    • Automatic stabilizers: progressive taxes, unemployment benefits (HL only)

    • Strengths and limitations in promoting growth, low unemployment, and low and stable rate of inflation

3.7 Supply-side policies

  • Goals of supply-side policies

    • Long-term growth by increasing the economy’s productive capacity

    • Improving competition and efficiency

    • Reducing labour costs and unemployment through labour market flexibility

    • Reducing inflation to improve international competitiveness

    • Increasing firms’ incentives to invest in innovation by reducing costs

  • Market-based policies, including:

    • policies to encourage competition, such as:

      • deregulation

      • privatization

      • trade liberalization

      • anti-monopoly regulation

    • labour market policies, such as:

      • reducing the power of labour unions

      • reducing unemployment benefits

      • abolishing minimum wages

    • incentive-related policies, such as:

      • personal income tax cuts

      • cuts in business tax and capital gains tax

    • Diagram: AD/AS model and LRAS curve to show the effect of supply-side policies

    • Diagram: showing minimum wage

  • Interventionist policies, including:

    • education, training

    • improving quality, quantity and access to health care

    • research and development

    • provision of infrastructure

    • industrial policies

  • Demand-side effects of supply-side policies

  • Supply-side effects of fiscal policies

  • Effectiveness of supply-side policies

    • Constraints on supply-side policies

      • Market based—equity issues, time lags, vested interests, environmental impact

      • Interventionist—costs, time lags

    • Strengths of supply-side policies

      • Market based—improved resource allocation, no burden on government budget

      • Interventionist—direct support of sectors important for growth

    • Strengths and limitations in promoting growth, low unemployment, and low and stable rate of inflation

Inquiry—possible areas to explore (not an exhaustive list)

  • The successes and constraints of fiscal policy in achieving low unemployment as a macroeconomic objective, for a chosen country.

  • The economic and social impacts on different stakeholders of monetary policy, for a chosen country.

Theory of knowledge questions

  • Can political beliefs and ideologies affect a person’s preference for one particular policy over another?

  • When evaluating economic policies, how important are cultural differences?

  • How much statistical data should economists use in determining the reliability of any economic policy result?

  • Economists and those who use economic theory may disagree with each other about the outcome of economic policies. On what basis might we make judgments about their relative conclusions?

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Last updated 2 years ago

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