How to get full marks in an IB Economics Essay Economics evaluation essays are often regarded as one of the most difficult assessment components of the IB Economics program. Students often struggle with structuring their evaluations and applying their economic knowledge to the question. However, evaluations do not need to be difficult and students often overcomplicate their thinking when writing evaluations. In this guide, we will examine first, the wrong way to approach evaluation essays and then how to correctly structure an evaluation. For this, we will use this question to demonstrate the essay writing process: “Evaluate the extent to which a depreciating exchange rate may benefit or harm an economy.” The wrong way Many students adopt this approach when writing evaluation essays: 1. Define 2. Descriptions and analysis 3. Evaluate Evaluation should not be the “icing on the cake”. Rather, the evaluation should be the cake itself. Writing an economics essay using the above approach can easily lead to the mistake of describing everything about a depreciation and leaving only a small part of the essay for evaluation. The next problem is that, when reading this type of essay, it is unclear as to what the student is evaluating until near the conclusion. As the student, it’s also easy to get sidetracked. Some students using this approach may often run out of time and not do any evaluation whatsoever, which will make earning even a 6 difficult. Finally, this with this approach, it is difficult to effectively tackle different types of economics essays. With the approach in this guide, evaluations can be tackled almost systematically which means that less thinking time is required, leaving more precious writing time. Note: This approach can work and I’m sure there are students who have scored 7s with this approach. But it is much more difficult to learn if you are unfamiliar with economics evaluations. What I recommend, is to use a systematic strategy and structure that can be applied to almost all types of essay questions.
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The correct way First, let’s think about what evaluation actually is. This can be found in most economics mark schemes: Effective evaluation may be to:
Consider short-term versus long-term consequences Examine the impact on different stakeholders Discuss advantages and disadvantages Prioritize the arguments.
The third description is the one that we recommend as it can suit the widest range of possible examination questions. Stakeholder and long run versus short run analyses are often subsets of a discussion of advantages and disadvantages, i.e. the advantages and disadvantages to different stakeholders, or in the short run and long run. Regardless of the question, there will always be advantages and disadvantages. However, there may not be enough to discuss regarding short run versus long run, or regarding various stakeholders. You should prioritize your arguments anyway, listing the most important advantages/disadvantages first. The approach I recommend can be used for almost all types of evaluation essays (With some minor tweaks). The key here is that with practice, you can do evaluations almost systematically, which saves on planning time and keeps your essay focussed. So, the 5 steps to getting full marks in your economics evaluation essay (Using the advantages and disadvantages approach): 1. Define key terms in the question This is fairly straightforward. The mark scheme awards a few easy marks just for defining the key terminology. It also helps to focus the essay and for the student to get into “essay writing mode.” 2. Answer the question in 1-2 sentences Essentially what this means is, summarise the entire essay into 1-2 sentences. This sentence is crucial and is designed to focus your essay. All of your future paragraphs from here will support this. It is also important to demonstrate your intention to evaluate here. Your 1-2 sentence summary must have elements of evaluation – i.e. useful phrases to use include, “it depends on” or “there are advantages and disadvantages” or “there are many costs and benefits associated” etc.
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This sentence can be fairly vague. What’s important is clarification on the direction you will take with your essay. 3. List and explain advantages Note: For policy choices, this can be replaced with “benefits” and for questions where you are required to evaluate a statement, simply replace this with “arguments supporting the statement” The more detailed the explanation of the advantage, the fewer advantages you need to discuss and vice versa. Aim for at least 2 and at most 3, although in rare instances you may only have one advantage that you discuss in length. With practice, you will intuitively work out how the length and detail that each advantage needs to be discussed in. Ideally, include one diagram per advantage discussed. As you become more advanced in your essay writing, it is often useful to qualify these advantages as well. Rather than simply writing “One key advantage is that the policy will reduce unemployment,” write “Given that the economy is likely to be experiencing a deflationary gap, an key advantage of the policy is that it will help to bring the economy closer to full employment.” 4. List and explain disadvantages Note: Replace with “costs”, or “arguments against the statement” as appropriate to the question. The principles behind this are the same as for advantages. 5. Weigh up advantages and disadvantages It is often the case that the advantages and disadvantages do not carry equal weight. Depending on what is being evaluated and the economy in consideration, it is often more appropriate to lean one side or another rather than simply writing “it depends.” This is essentially your conclusion. For the vast majority of evaluations, this should be a tentative conclusion, i.e. “It is likely to be advantageous overall” rather than “It is definitely advantageous overall.” For evaluations of policies, it may be powerful here to consider some alternative policy options. Remember also that doing nothing is a possible policy choice.
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Key things to remember 1. Your essay’s purpose should be to evaluate. Evaluation should not be the “extra” part you add on for bonus marks. 2. Answer the question and only the question. But use the question as an opportunity to show off your economic knowledge 3. Diagrams should always be “sandwiched.” Relevant text should always be used to introduce the diagram and subsequently to explain the diagram. Do not have a diagram hanging at the end of a paragraph or randomly inserted before a chunk of text. 4. Diagrams must be labelled accurately and titled. Diagrams should also show a shift of some kind. This can be done by using an arrow. I also recommend labelling diagrams Figure 1, Figure 2 etc. This makes them easier to refer back to. 5. Use real world examples. Tackling this is easy. Go on Google and find a statistic for: a. b. c. d. e. f. g. h. i. j.
A country that is experiencing rapid growth (Hint: China) A country that is experiencing very slow growth A country experiencing high inflation A country experiencing low inflation or deflation (Hint: Japan) A country with low GDP/capita Countries with high and low income inequality (HL) Countries with fixed and floating exchange rates A country with high levels of debt A country that is a net exporter A country that is a net importer
The list goes on. Basically, you can get some quick and easy marks just by having some real world knowledge handy. 6. Have some original thought Original thought is essentially using your creativity to add a little extra flavour to your response. Try to go a little beyond what is mentioned in the text book. The easiest way to do this is to qualify your advantages and disadvantages to the question specifically. For instance, if the country has high debt levels and you are evaluating depreciation, it may be useful to include something like: “Given that the economy is experiencing high debt levels, a depreciation is likely to make it more difficult to service debt repayments.”
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Your essay should not be generic. To achieve the highest marks, it needs to be targeted to the question. This is especially true for the 8 mark data response evaluation question. 7. Explain concepts linearly What this means is don’t have your analysis jump from A straight to D. Explain your reasoning in a step-by-step manner, as if you are an economics teaching explaining the concept to a student. For instance, if you are trying to explain that lowering interest rates is likely to increase aggregate demand, your explanation should look something like this: “Lower interest rates represent a lower cost of borrowing. As such, firms more likely to invest in capital, which is likely to increase the level of investment in the economy. Furthermore, a lower interest rate results in a lower return on savings, which is likely to result in a lower marginal propensity to save and thus a higher marginal propensity to consume. All else being equal, this is likely to result in higher consumption. Since investment and consumption are both components of aggregate demand, lowering interest rates are likely to lead to an increase in aggregate demand.” The wording could probably flow a little better, but you see the point. Explain concepts in a linear fashion or the examiner may get lost, or assume that you don’t fully understand what you are writing. 8. Practise, practise, practise! Write as many economics essays as possible before your final exam. This is the only way that you will be able to master the art. After you have written each essay, ask for feedback from your economics teacher. If you are doing past paper questions, look at the mark scheme to see what you may have missed. In your final exam, do not expect to have much time left remaining. Through practice, you will be able to write faster and not need to commit as much time to thinking. In your final, planning time should take no more than 5 minutes and for the most part, if you have this structure memorised, you should be able to think ahead as you are writing. At first, it is acceptable to use the textbook/Google as you are writing. But I have a rule for this – don’t use the textbook twice to look up the same concept! 9. If you’re doing HL, make sure to include HL content
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Example essay Below is the essay question that I had for my final exam in Paper 1. I received 25/25 for it and this is more or less what I wrote in my exam. In the interests of explaining how to write the essay, I will break the essay down into the component parts described in the method I just taught. (Obviously, don’t use subheadings like this in your essay) The advantages and disadvantages model is used, but analysis of different stakeholders and of short and long run consequences are imbedded. “Evaluate the extent to which a depreciating exchange rate may benefit or harm an economy.” 1. Define key terms in the question A depreciating exchange rate is the loss in value of a currency relative to another currency in a floating exchange rate system. 2. Answer the question in 1-2 sentences Whether a depreciation benefits or harms an economy depends largely on characteristics of the economy and the way it achieves its macroeconomic objectives. 3. List and explain advantages (benefits in this case) The key benefit of a depreciation is that is likely to help a economy become more competitive with its exports. A weaker currency represents a lower price on the country’s exports and all else being equal, this should lead to an increase in the quantity demanded. For countries that achieve a significant part of their economic growth through exports, e.g. coal exports for Australia, a depreciation is likely to be beneficial. Furthermore, since exports are a component of aggregate demand (AD); the sum of consumption, investment, government expenditure and net exports, AD is likely to increase. This is further reinforced by the fact that imports will become relatively more expensive due to the depreciation. This should decrease the economy’s marginal propensity to import and increase the marginal propensity to consume. The net effect is a decrease in import consumption and an increase in domestic consumption, further increasing AD. Given the current global economic environment due to the GFC, many economies are likely to be operating with a deflationary gap and as such the increase in AD is likely to be beneficial.
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This can be seen in Figure 1 below: Figure 1. AD/AS Model General price levels
LRAS SRAS
P2 P1 AD2 AD1 Y1
Y2 Yf
Real GDP
As shown above, the depreciation is likely to result in AD increasing from AD1 to AD2, resulting in output increasing from Y1 to Y2, thereby reducing the deflationary gap from Y1Yf to Y2Yf. This is beneficial as it brings the economy closer to the full employment level of output. Given that full employment, Yf, occurs at the non accelerating inflationary rate of unemployment (NAIRU), a lower level of unemployment can often result in disinflation. The trade-off of an increase in general price levels from P1 to P2 is unlikely to be a problem for the economy. As the exporting sector grows, it is likely to domestic firms are able to expand, thereby creating economies of scale as costs of production per unit decrease. In the long run, this may even have positive supply side benefits, which can help to increase economic growth without being inflationary. Finally, given the likely rise in unemployment levels for most economies after the GFC, if the depreciation can effectively stimulate AD and lower the rate of unemployment, it is likely to be fairly beneficial for the economy. 4. List and explain disadvantages (costs in this case) There are however, certain costs that a depreciation may impose on an economy. Firstly, there is no guarantee that the depreciation will actually lead to an increase in net export revenues, especially in the short run. According to the Marshall Lerner condition, a Owen Yang – Head Tutor, Australian IB Tuition
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depreciation will only lead to an improvement in the current account, of which net export revenue is the main component, if PEDimports + PEDexports > 1. The reason behind this is that the exchange rate represents the price of the exports/imports. A depreciation translates to higher priced imports and cheaper exports. However, if PEDimports are inelastic, then the percentage decline in quantity demanded will be less than the percentage increase in price, resulting in a net increase in import revenue. Similarly, if PEDexports is inelastic, then the percentage increase in quantity demanded will not be as high as the percentage decrease in price, resulting in a net decrease in export revenue. Since goods and services are more likely to be price elastic in the long run, as consumers have time to gather information and change habits, it is likely that the depreciation will only be improve net exports and hence AD in the long run. In the short run, the current account is likely to deteriorate. This effect can be seen in Figure 2 below: Figure 2.
J-Curve
Current Account Balance
C
A
Time
B
As shown above, after a depreciation, the current account balance is likely deteriorate in the short run from A to B and only improve in the long run from B to C. The impact of this cost depends on the severity of the short run deterioration and the length of the short run. If there is too much time before the Marshall-Lerner condition is satisfied then it is likely that the depreciation will cause the economy more harm than good. In particular, countries with high levels of foreign debt, such as Greece, are likely to struggle. To repay foreign debt, the foreign currency must be used and in the case of a depreciation, more of the domestic currency per unit of foreign currency will be required, making it more difficult to repay the
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debt and subsequent interest payments. Furthermore, third world countries that already have weaker currencies, are likely to suffer from a depreciation. Not only will servicing debt become more difficult, but also it will be more difficult to access foreign technologies and imports. Finally, for countries that have a strong reliance on imports, a depreciation may be particularly harmful and may even lead to adverse aggregate supply shocks. If a significant proportion of the economy’s factors of production are imported, then the depreciation will mean a rise in the costs of production for many goods. An example would be if the country imported all of its oil, which is an input into power generation, packaging and transportation. The effect can be shown in Figure 3 below: Figure 3. AD/AS Model General price levels
SRAS2
LRAS SRAS1
P2 P1
AD Y1 Y2 Yf
Real GDP
If the economy relies on imports for a significant proportion of its production, then the depreciation may cause a short run aggregate supply shock, shown as a decrease from SRAS1 to SRAS2. The key consequences of this are that it results in a decrease in real GDP from Y2 to Y1, thereby widening the deflationary gap, slowing down an already weak economic growth rate and potentially leading to higher unemployment. This is exacerbated by the fact that general price levels are likely to increase from P1 to P2, resulting in a potential stagflation effect. Increasing the cost of living in an economy that has high unemployment is often highly detrimental.
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5. Weigh up advantages and disadvantages There are many costs and benefits associated with a depreciating exchange rate on an economy and the net impact depends on the characteristics and circumstances of the economy. For countries that are net exporters with low levels of foreign debt, the depreciation is likely to be beneficial. However, countries that are net imports and those with high levels of foreign debt are likely to be negatively impacted. Overall however, the exchange rate is a self-correcting mechanism and any effects are unlikely to be long lasting.
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Closing Thoughts Hopefully this has helped make writing economics evaluation essays a bit simpler. Essentially, mastering the process comes down to 3 main steps: 1. Mastering the theory by going through the syllabus, point by point 2. Practising with essay questions 3. Learning from feedback We will finish off with a final summary of the 5 step method: 1. 2. 3. 4. 5.
Define key terms in the question Answer the question in 1 to 2 sentences List and explain advantages List and explain disadvantages Weigh up advantages and disadvantages
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Best Wishes, Owen Yang NSW Head Tutor Australian IB Tuition
Owen Yang – Head Tutor, Australian IB Tuition
www.ausibtuition.com