Cause (the Problem)

Before we can answer how good or bad the policy response was, we need to know the WHY behind the government’s decision. We want to set a reference point to compare against later. I like to call this part of the timeline the ‘problem’.’ It provides the reader with context as to the rationale for the government’s policy, and later allows us to evaluate whether or not said policies had a net positive or negative impact.

 “An increase in global commodities demand put upwards pressure on Australia’s export prices and a 33% higher ToT stimulated AD (AD = C+I+G+X-M) in the Australian economy. During this period, economic growth reached a peak of 3.9% of GDP growth (2012) and inflation rose from 1.8% (2009) to 3.3% (2011). Higher commodity prices also led to the formation of a two-speed economy, where the rapid appreciation of the AUD to US$1.1 (Q1 2013) reduced the competitiveness of non-mining sectors and threatened to increase widening inequality between sectors.”

 After we establish the problem, the solution (i.e. fiscal policy) follows:

 “Signs of an overheating economy prompted the government to employ a contractionary fiscal policy stance, with the size of budget deficits falling from to -3.7% (2011) of GDP to -3% (2012) to -1.6% (2013).”

 Some other pointers:

• Do use statistics (in pairs) to quantify a trend. If something increases or decreases, it should probably come with a statistic!
• Do use low modality language (e.g. may, might, should). For example, “contractionary fiscal policy contributed to lower economic growth” instead of “contractionary fiscal policy led to lower economic growth.”
• Do use common abbreviations (e.g. AD, ToT, GDP).

Effect (of the Solution)

Then, our evaluations become quite simple! We can compare economic objectives before and after:

“This acted as a handbrake on AD, reducing growth to 2.6% by 2016 and decreasing demand-pull inflation to 2.5% by 2014. However, this came at the cost of higher cyclical unemployment which rose from 5.1% (2011) to 6.1% (2014). Moreover, contractionary FP accelerated the advent of the Dutch Disease Phenomenon, the closure of the PMV sector in 2017 marking the ‘death’ of the domestic high-value added manufacturing industry. To some extent, income inequality increased between mining and non-mining sectors, with the Gini coefficient increasing from 0.320 (2012) to 0.333 (2015).”

By juxtaposing statistics before and after the solution’s implementation, we come to a well-informed evaluation.

But wait, there’s more… The evaluation is an opportunity to show off your breadth of policy implications! It’s good practice to acknowledge both positives and negatives of policy decisions – this shows a deeper understanding of policy tradeoffs and limitations. For example, the above snippet mentions how contractionary fiscal policy, while slowing down inflationary pressures, also contributed to cyclical unemployment and the decline of non-mining sectors.

For the finishing touches, our linking sentence again answers the question and clearly states our evaluation:

“All-in-all, while the 2010-13 MIB II demonstrated the limitation of FP as a blunt-tool, the efficacy of FP as a demand-side tool to slow down inflationary pressures was evidenced.”

Some other pointers:

• Do have a nuanced perspective of the question. The answer is never black or white.
• Do acknowledge positives and negatives for an ‘evaluate’ or ‘assess’ directive term.

And… we’re done! At least for this time period.

To recap, each section should answer the following:

1. Why did the government implement said policy?
2. How did the government try to solve the problem?
3. What was the effect of the government’s solution? Were there any implications?
4. Given the facts, was the government’s solution a net positive or negative?

Rinse and repeat for relevant time periods (e.g. 2020 COVID-19, 2021 V-Shaped Recovery, 2022 Cost of Living Hikes, 2023-Present Monetary Tightening).

Happy essay writing!
Jimmy Chan, Head of Economics at ACE