Economics in the News (17-05): Ten ways to improve

evaluation
Wednesday, May 17, 2006

What is evaluation?

Evaluation is about making critical judgements and coming to reasoned conclusions on the
basis of the evidence that you have in front of you.

Strong evaluative answers use supporting evidence to justify an argument. Some might be found
in the stimulus material that accompanies a data response question. Frequently the evidence can
come from your own economic knowledge and awareness on the basis that you have studied a
subject for nearly two years. Justifying an argument always carries more marks than making the
argument since stating an argument is a relatively simple task.

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Examples of command words in a question that require or invite evaluation

1. Evaluate – e.g. compare a number of possible views about an economic problem or an

issue and come to a reasoned conclusion about which view holds most weight

E.g. evaluate the record of the Bank of England since it was made independent of
government in May 1997.

2. Assess - analyse an economic issue and then weigh up the relative importance of
different strands

E.g. assess the possible effects of a rise in the external value of the pound against the
currencies of our major trading partners

3. Do you think – a question that invites a personal response to a question but where the
highest marks are awarded for good analysis backed up with reasoned argument and
supporting evidence?

E.g. do you think that a national system of road pricing should be introduced for Britain’s
motorway network?

4. Discuss – a question that prompts you to provide and then compare a range of possible
views about an issue or a problem.

E.g. discuss the advantages and disadvantages of introducing a national minimum wage
into the UK labour market

5. Critically analyse the problems facing UK manufacturing industry in today’ global

economy

6. To what extent – again a question that invites quite a broad analysis and discussion and
in particular a judgement on the relative importance of something or the relative merits /
de-merits of a policy

E.g. to what extent should a government operate a high budget deficit to stimulate
economic growth?
Ten strategies for improving evaluation skills in data response and essay questions

1.      Make good use of your final paragraph

2.      Look for key stem words in the question – and build some of your evaluation around
this
3.      Put an economic event, a trend or a government policy decision into a wider context
4.      Be familiar with different schools of thought
5.      Be aware that a singular economic event never happens in isolation
6.      Question the reliability of the data you have been given (especially in data questions)
7.      Draw on your wider knowledge to provide supporting evidence and examples
8.      Consider both short term and longer term consequences (they are not always the
same)
9.      Think about what might happen to your arguments if you drop the “ceteris paribus”
assumption
10.  Try to challenge views and statements – try to question pre-conceived ideas, turn
statements around, consider that some statements are merely fallacies designed to fool
the lumpen-economists! Don’t accept what you are being told at face value.

Economics is rather like a jigsaw, if you do enough reading, thinking and revision,
eventually the pieces really start to fit together and, finally, you can see the whole (bigger)
picture

Make good use of your final paragraph

·         Try to avoid a simple summary of points that have already been made. This scores no
extra marks and is a waste of scarce exam time.
·         Seek to come to a reasoned conclusion – e.g. selecting your main argument and then
justifying it. You may not want to come to a firm definitive conclusion (that is fine) but
reach a degree of closure in your answer.
·         Perhaps look forward, e.g. is it too early to come to a definitive conclusion? “It is too
early to say”!
·         If you are really pushed for time, add in some final evaluation points as bullets.

Look for key stem words in the question – and build some of your evaluation around this

Essay question:

“Evaluate the view that the government should give financial assistance to firms
producing cars in the UK to increase their competitiveness.”

a.       What does financial assistance mean?

b.      What different forms might it take? Subsidies, tax breaks? Investment grants?
c.       Draw on recent examples of occasions when financial assistance has been
asked for or has been forthcoming.
d.      What does competitiveness mean? It is a concept with more than one meaning.
e.       How might financial assistance contribute to improving competitiveness?
f.       How might financial assistance have the opposite effect?
g.      Which firms might be offered financial help?
 h.      Who are the stakeholders involved in such decisions?
i.        Who gains and who loses in the medium term from state aid?
j.        Should the state provide aid to financially distressed companies?

Data response (final) question

“Using the data and your economic knowledge, assess the extent to which interest rate
cuts are likely to improve the performance of economies such as the USA and the UK”

a.       Your answer will need to consider what the “performance of economies” means
– i.e. which real economic variables are part of the overall performance issue?
a.       Short term performance?
b.      Longer term economic success (hinting at supply-side indicators)
b.      Demand-side effects of interest rate cuts
c.       Supply-side effects of interest rate reductions
d.      Are interest rate cuts on their own sufficient to achieve a sustained
improvement?
e.       What are the economic risks from cutting interest rates?
f.       When might interest rate reductions have little effect? (e.g. consider the liquidity
trap)
g.      Have lower interest rates actually benefited the performance of countries such
as the United States and the United Kingdom? – draw on recent macroeconomic
evidence

Data response (final) question

“Using the data and your economic knowledge, evaluate the consequences of a
sustained, high rate of economic growth.”

a.       What does the word sustained growth mean?

b.      Is there a difference between sustained growth and sustainable growth?
c.       What does a fast rate of growth mean?
d.      Are the two compatible? To what extent might a high rate of economic growth
not be sustained or sustainable in the long term
e.       Distinguish between the short term and longer term consequences of high
rates of growth

Keep focussed on those stem words – so that your answer does not drift into irrelevance

Put an economic event, a trend or a policy into a wider context

This is all about putting something into a bigger picture, recognising that we live in an
interdependent, global world with all sorts of interesting and often complex inter-relationships.

For example
a.       Linking a discussion about the national minimum wage with the importance of
businesses being competitive within a global economy
b.      Considering the effects of a rise in government spending on transport
infrastructure in terms of the UK’s ability to trade and compete within the
European Single Market
 c.       Discussing options for reforming the CAP and linking to wider environmental
concerns and prospects for progress in global trade talks
d.      Considering the macroeconomic effects of a microeconomic policy e.g. longer
term macroeconomic effects of the introduction of a ban on smoking in public
places

Be familiar with different schools of thought

E.g.

Keynesian versus neo-classical economists on the roles that govt intervention can play in
managing aggregate demand

Free-market trade supporters versus economists who believe that protectionism is

justified

Economists who believe in progressive taxation contrasted with those who are advocating
flat rate tax systems

No single school of thought has all of the answers – most have approaches that are
deeply normative – containing value judgements about what the world or economy
should be.

Be aware that a singular economic event never happens in isolation

E.g.

A rise in the world price of oil is an external shock to a country but it happens in the
context of other developments in the world economy, some of these other developments
might amplify the effects of more expensive oil whereas other events might lessen the
impact

Exchange rate changes

Changes to monetary and fiscal policy

The key point is that other events happening in the macroeconomy can alter the
magnitude of the effects of an economic shock.

Consider the possible second round and third round effects of a “shock”

E.g. A rise in commodity prices – higher cost-push inflation – wage demands may follow
price rises – this impacts on business profits – affects planned investment and
employment

The second and third round effects may have an asymmetric effect on different parts of
the economy or differential impacts within a group of countries.

Question the reliability of the data you have been given (for data questions)

This is especially true in data questions and in the Unit 4 paper on the European Union
where you can raise issues over data which is

(i)                 Out of date (although there are time lags between an exam paper being set
and you sitting it!)
(ii)               Incomplete or partial, additional information might help you come to a
stronger conclusion
(iii)             From sources that show evidence of bias (this is especially important in Unit
4 but you should also be on the lookout for it in the other two exams, not least in
 the compulsory data response questions.)

Draw on your wider knowledge to provide supporting evidence and examples

What happens in theory rarely matches what happens in reality! If you are well-read and
have kept up to date with developments in the UK and international economy, then you
are much better placed to back up your arguments with concrete evidence.

“An economist is someone who sees something working perfectly well in practice and
wonders if it will work just as well in theory.”

I consider the use of wider knowledge to be the key to really good answers at A2 level.
Demonstrate in your writing that you have studied a subject, not just turned up to the
lessons. Be careful not to overload the reader (examiner) with a barrage of statistics or
examples, but judicious use of up to date information can add considerable weight to your
answers,

Consider short term and longer term consequences (they are not always the same)

Economic events happen at moments in time, but the consequences can take
considerably longer to show through

Time lags between changes in one variable affecting another

E.g. changes in interest rates or fluctuations in business sentiment

Short term effects of an exchange rate change (possible J curve arising from a
depreciation) and the longer term effects on output, employment, investment and living
standards

The time lags for supply-side policy changes can be lengthy – often measured in years.

E.g. the longer term effects and implications of trade union reforms, of joining the
European Union, of enlarging the EU, of joining the single currency, or not joining the
Euro!

Think beyond the short term and the immediate! The further forward you project, the less
certain you can be about the outcome, but some of the most important effects of an
economic change can only be viewed some years hence.

What might happen to your arguments if you drop the “ceteris paribus” assumption?

Individuals, businesses and governments do not always act rationally – indeed how can they?
The behaviour of economic agents cannot mirror the neat precision of an economic textbook
remember the “law of unintended consequences.”

Everything else is rarely equal!

Try to challenge views and statements

Consider some of these statements. It might be worth you going through some of them and
discussing and sharing your thoughts on them.

(i)                 Economic theory has little to contribute if people do not behave optimally
(ii)               A balance of payments deficit is an economic problem
(iii)             Fixed exchange rates are more stable than floating exchange rates
 (iv)             Cutting interest rates to zero will always boost demand in the economy
(v)               Higher taxes on cigarettes will always lead to more tax revenue
(vi)             Economic growth inevitably damages the environment
(vii)           The activities of ticket touts are evidence of market failure and should be
banned.
(viii)         Rising levels of obesity is clear evidence of market failure
(ix)             New technologies create extra unemployment because capital replaces labour
(x)               Labour market flexibility is needed to make a country more competitive
(xi)             In the long run, a higher minimum wage will cost jobs
(xii)           Government borrowing should be controlled by the “Golden Rule” principle
(xiii)         Trade unions can only win higher wages at the expense of falling employment
(xiv)         Companies that make excess profits should be taxed more heavily
(xv)           Capital investment is a good thing and should be encouraged by government
policy
(xvi)         Companies will tend to choose locations for production where wage costs are
lowest
(xvii)       Building motorways is an effective way of reducing congestion on major roads
(xviii)     Pure monopoly exists
(xix)         £2 million worth of output from a hi-tech manufacturing industry is worth more
than £2 million worth of output from McDonald’s.
(xx)           The British economy should become as productive and competitive as it can
(xxi)         The rise in demand for gambling services is bad for the economy
(xxii)       Paying workers higher wages increases a firms’ costs
(xxiii)     There is no such thing as a “population time-bomb” or a “pensions time-bomb” or
an “environmental time-bomb”. Time-bombs never explode!
(xxiv)     Despite globalisation, global poverty rates among children are continuing to rise
(xxv)       The higher the level of exports, the better the performance of an economy
(xxvi)     Innovation means ever greater use of resources, disposability of goods,
consumer spending and social envy. There is therefore a case for suppressing
innovation
 

Putting Evaluation into Your Answers

Monday, March 27, 2006

Adopting a balanced approach

“The higher levels of marks will elude the candidate if there is no attempt to include some explicit
evaluation.” (AQA Report, June 2004)
Examiners will always reward students who adopt a balanced approach and those who try to
reason out and explain their arguments i.e. they demonstrate an awareness of different
points of view / different schools of thought in Economics
Examples include:
         Monetarist versus Keynesian views on the impact of fiscal and monetary policies as
instruments of demand management.
         Polluter-pays principle versus tradable-permits versus regulation as means of
reducing environmental pollution.
         Economists who believe that fixed exchange rates are more effective than allowing a
currency to float.
         Competing views on the relationship between economic growth and its long-term
environmental impact.
         Different schools of thought on the benefits of competition versus regulation in a
market.
Discussion of competing theories leads naturally into good evaluation – For example, you may be
asked to evaluate how well the free-market performs, and the circumstances in which there may
be a case for non-market (state) provision of goods or services.

Putting things into context as a way of evaluating

High level students seem to have a happy knack of putting issues into a clear context and this
certainly counts as evaluation!

Consider the theory of perfect competition. On the surface an extremely limiting theory because
the assumptions on which it is based are so restrictive. There may be better theories more
appropriate to real world markets such as contestable markets theory? But then again,
understanding a world that might come close to perfect competition does have its uses. For
example being able to understand why the foreign exchange markets are very near to pure
competition is a useful context to have.

In macroeconomics exams, high marks are available for students who have a good working
knowledge and understanding of the recent performance of the British economy, but who can
also put that performance into context, for example comparing and contrasting the UK with other
European Union countries. Or being able to put the UK into a much wider global context.

Commenting on the significance of something

Evaluating the significance of something – ask the question - does it actually matter?
What are the possible implications of an event such as an external economic shock?
Are the effects likely to be transitory (short term) or will they have important longer-term
consequences?
         E.g. The significance of a short term change in the exchange rate or in interest rates
         The possible impact of rising global oil prices on developed and developing
countries
         Remember that countries will be affected in different ways to the same “shock” e.g.
higher oil prices will have different effects for oil importers and oil exporters. There are
asymmetries in terms of the effect of a change on different groups, businesses, regions
and countries

The Law of Unintended Consequences

Evaluation is enhanced if you emphasise that government policy changes might have
unintended effects.
         Possible government failure from policies designed to correct for market failure
         Government intervention to stabilise prices and producer incomes in agricultural
markets may cause long term problems of over supply / loss of economic efficiency.
Consumers and producers do not always behave in a conventional textbook way.
Misguided and unsuccessful intervention then leads to problems of government failure, and
provides the case for market forces rather than intervention in determining the allocation of
resources. E.g. free provision may lead to over-provision of a merit good and consumers under-
valuing the service provided.

Questioning the assumptions upon which theory is based

Questioning the assumptions on which a piece of economic reasoning stands

For example
         The realism of the assumptions required for economic efficiency in perfectly
competitive markets.
         The assumption that export prices always rise and export volumes fall when the
exchange rate rises.
         Assumptions about how taxpayers will respond if the government cuts taxes in order
to give a fiscal stimulus to the economy.
If the assumptions change, then your analysis may also change – and this can be developed in
your answer.

Trying to reach reasoned conclusions

Coming to a reasoned conclusion on the basis of the evidence / supporting examples

that you have used
Often the conclusion may be that there is insufficient evidence or that not enough time has
elapsed to reach a convincing judgement – for example in evaluating the economic effects of the
congestion charge or the national minimum wage

Weighting the strength or weakness of arguments

Evaluation also involves stating which arguments you believe to be most important and
why
         Looking at the advantages and disadvantages of policies
         For example:
o        Electronic road pricing as a means of reducing externalities from congestion
compared to other policy options.
o        Ranking different options for reform of the European Union Common
Agricultural Policy.
The different options that a government has if it wants to improve the incentives of low paid
workers in the labour market (examples include the minimum wage; changes to the tax system
and reforms to welfare benefits).

Stressing the importance of the time dimension

How long does the multiplier take to work or how long does the transmission mechanism of
changes in interest rates take to work through the economy? The time dimension is important, for
example, interest rate changes as part of a series of changes can only be properly assessed over
a period of time.  In economics, there are no isolated variables.  How do you judge isolated
variables in the long-run when there are so many other variables?  Can any one multiplier effect
ever be calculated?

Use relevant evidence and examples

Use relevant supporting evidence in your arguments. The examiners will always reward
reference to recent developments in particular industries and markets, and to developments in
both the domestic and international economy. Exam questions will often say “using the data and
your own knowledge”, this is a clear signpost that the exam requires you to bring into your
discussion some ideas and evidence drawn from your own reading.
Before the exam make sure you are armed with some of the key statistics on the UK and
international economy – particularly useful for the macroeconomic essay questions (e.g. on
unemployment, inflation, economic growth and the balance of payments).

Useful evaluation phrases to use in answers

Some useful phrases to use to help the examiner!

         The arguments for and against “X” are finely balanced….
         A change in X might cause a change in Y however this depends on Z being held
constant…..
         A possible disadvantage of this strategy / policy is that …
         The relationship between S and T depends on certain assumptions which may not
be the case in reality…..
         The effects of a change in “A” depend on the price elasticity of demand and
supply….. and if the elasticity changes, then the analysis can change
         The argument that X causes Y is actually contradicted by recent evidence which
shows that….
         Although a fall in M should lead to a rise in N, but time lags mean that policy
changes take time to have their full effect…..
         Although there are short term effects arising from the introduction of M, the longer-
term impact might be more important
         In conclusion, there are several policy options available to the government. I would
argue that policy X is likely to be most effective in achieving the government’s objective in
the long run. This is because …………..
         There may be a potential conflict involved with this policy because ……
         To conclude I would argue that …
         The weight of my arguments suggests that policy X is the one that the government
should consider first because ….
Good evaluation may be consistent with the view that in economics, everything depends on
everything else!