Download IB Comparative Political and Economic Systems

IB Comparative Political and Economic Systems
Tips for Success on Current Events Commentary about
Macroeconomics
Step 1: Find an article about the economy of an entire country
I highly encourage you to pick a county other than the United States to give your commentary a
more international focus. Ask your school librarian about the Gale databases for finding current
events articles. As you search, you might try some of the following keywords:
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Growth/expansion v. recession/contraction
Inflation or deflation
Unemployment or “labor market”
Monetary or fiscal policy
Bank of [name of country]
Interest rates
Gross Domestic Product
Consumer Price Index
Mention of “the economy”
Although changes in imports and exports do affect aggregate demand and have major
macroeconomic significance, articles primarily focused on trade may be better suited for
commentary #3. (We will examine imports and exports in much greater depth in the next
commentary.)
Make sure you select an article from a different source than you used for the first and second
commentaries. If you used the Register Guard before, you cannot use it again. Don’t forget to
highlight key points in the article with a highlighter pen.
Step 2: Assess the current condition of your country’s economy
What seems to be the overall condition of your country’s economy? Is it currently in a recession,
in an expansion, or at long-run equilibrium? It is important to figure out where your country is in
the business cycle because this will tell you how to draw the initial positions of the curves on the
aggregate supply/aggregate demand diagram. If your country is in recession on the business
cycle diagram, you will start with a recessionary gap on the aggregate supply/aggregate demand
diagram. If your country is experiencing a boom on the business cycle/trade cycle diagram, you
will start with an inflationary gap on the aggregate supply/aggregate demand diagram.
You may be able to find hints in the article about the condition of your country’s economy based
on the action the government is taking. If the government is lowering taxes, increasing its
spending or cutting interest rates then the country is probably in a recession and policymakers
are taking steps to stimulate the economy. If the government is raising taxes, decreasing
spending or raising interest rates, then the country is probably in an expansion and policymakers
are trying to keep the economy from overheating.
Step 3: Using diagrams, explain changes in your country’s economy and identify a problem
Draw an aggregate supply/aggregate demand diagram that reflects the economic condition you
determined in step two (recession, expansion or long-run equilibrium). You may also draw a
business cycle diagram to drive the point home. Quoting specific information in your article,
explain which curve is shifting and why. Illustrate the shifts on the graph. Remember,
 Change in consumption, investment, government spending and/or exports minus
imports = shift in aggregate demand.
 Change in rent, wages, interest, profit = shift in short-run aggregate supply only on
the new-classical AD/AS diagram. (These are just the prices for factors of
production.)
 Change in quantity or quality of land, labor, capital or enterprise = shift long-run
aggregate supply on neoclassical AD/AS diagram, followed by shift in short-run
aggregate supply to reach long run equilibrium.
 Anything that changes LRAS or SRAS on neoclassical diagram shifts the single longrun aggregate supply curve on the Keynesian diagram.
Explain any short-run changes to the economy. Does the country experience an increase or
decrease in real GDP? Make explicit references to changes in the “Y” variable on the AD/AS
diagram—does the movement from Y1 to Y2 indicate an increase or decrease in output? How
will changes in real GDP affect the unemployment rate and average price levels? (Be sure to
describe price level changes in terms of P1 moving to P2.) Does the country experience
demand-pull inflation, cost-push inflation or deflation? Who would inflation help or hurt?
Deflation? Explain how ordinary people would be impacted by changes in the
unemployment rate or price levels.
Consider what will happen in the long run if the government takes a laissez-faire approach and
does nothing. Whether workers will accept lower wages in a recession and bargain for higher
wages during an expansion depends on whether one takes a Keynesian or neoclassical
perspective.
Step 4: Recommend a specific government policy (or explain an existing policy)
You may decide that fiscal policy, monetary policy or no action is the best way to deal with the
problem or problems you identified in step 3. You may also consider whether demand side
policies or supply side policies will be most effective. Review your notes and the textbook to
help you determine the advantages and disadvantages of each kind of policy. It’s even better if
your article describes a government policy and you use your skills to explain it.
Step 5: Evaluate specific government policies or macroeconomic theories themselves
Evaluation should ideally be spread throughout the entire commentary and not be tacked on to
the end. Be sure to keep connecting your evaluation back to examples from the article and not let
it get bogged down in pure theory. Some things to keep in mind when evaluating policies:
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Keynesian and neoclassical theories may provide very different interpretations of what
government policies are necessary to remedy problems or recession or inflation.
Interpreting the article from both perspectives and arguing which one is more appropriate
is a fantastic form of evaluation.
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Make sure to explain both one positive and one negative outcome for ordinary people that
could result from a government policy or change in the overall economy. Refer back to
the relationship between output and unemployment, the costs (and benefits) of inflation,
or the limitations of GDP in measuring wellbeing.
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You might consider the things that GDP does not account for, such as income distribution
or environmental destruction. This could be a great place to work in a graph showing
negative externalities. One way to indirectly illustrate the distribution of income through
a PPC curve is to graph the production of luxury versus necessity goods. Again, use
specific examples from your article as much as possible. Does the article describe or even
hint at pollution or a growing gap between rich and poor? If so, give a quote.
General tips:
 Use a wide variety of diagrams. At a bare minimum, include the aggregate
supply/aggregate demand diagram with at least two additional different kinds of graphs.
Your supporting graphs may include a business cycle diagram, a PPC curve, a circular
flow diagram, market for loanable funds diagram, Lorenz curve, or an illustration of
negative externalities, depending on your article.
 This is not a prescription of how to write your paper. There are many more tips here than
are practical to incorporate into your paper. You will have to use your own judgment to
pick and choose what issues to address.
 Clearly define all key terms that you use in your commentary, such as GDP, inflation,
unemployment, consumption, investment, etc.
 Get someone to proofread your commentary before you turn it in. Show me a rough draft.
 Identify the “winners” and “losers” in your article. This is a great chance to write about
social justice issues and effects on the rich, middle class and poor.
 Keep it real. What is the key lesson that a lay person without economics training should
learn from the graphical analysis in your commentary? Put it in plain English.
 Have fun with this! You are playing with powerful tools that determine the wellbeing of
millions of people. No pressure.