Macro analysis is just a sequence of linked consequences, almost always anchored to an AD/AS diagram. For example:
Analysis — build the chain
Spec: AO3
Macro analysis is just a sequence of linked consequences, almost always anchored to an AD/AS diagram. For example:
Model chain — a cut in interest rates
Lower interest rates → borrowing is cheaper and saving less rewarding → consumption and investment rise → AD shifts right → with spare capacity, real GDP and employment rise (show on AD/AS) → therefore growth and unemployment improve.
Evaluation — the MICE toolkit
Spec: AO4
Evaluation means weighing things up and reaching a supported judgement. When you're stuck, run through MICE:
| Letter | Prompt | Macro example |
|---|---|---|
| M — Magnitude | How big is the effect? | How large is the multiplier? How big is the AD shift? |
| I — It depends | On what conditions? | On spare capacity, business confidence, the shape of LRAS. |
| C — Counter-argument | What's the other side? | Time lags, crowding out, the risk of inflation. |
| E — Economic context | Short vs long run? | Keynesian (spare capacity) vs Classical (full capacity) outcomes. |
Exam tip
Every top-band macro judgement ends by saying "it depends on…" and naming the decisive factor — usually spare capacity, the size of the multiplier, time lags, or the state of confidence.
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