Evaluation in Economics

Evaluation in Economics In each part of your examination, marks are given for showing up to four different skills in answering the questions: 1. Knowledge: this is showing that you know the facts of the case-it might be from your own reading or discussion, or it might be in the text or charts given to you. If they give you data, use it. Example of demonstrating knowledge: 'interest rate rises can be used to reduce inflationary pressure in an economy." 2. Application: this is showing that you can use your knowledge in the right context. For example: 'The Bank of England has raised interest rates twice by 0.25% since November in order to reduce inflationary pressures'. Here we have mentioned who did it and when and by now much. The easiest way to get application marks is to refer to the text given to you. 3. Analysis: explaining cause and effect; explaining how some action or event leads to another, explaining transmission mechanisms, explaining how parts come together to make the whole. For example: 'A rise in interest rates usually leads to a fall in aggregate demand through the following routes; firstly, higher interest rates raise the opportunity cost of consumption, and raise the cost of borrowing, so consumption (and therefore AD) may fall..... 4. Evaluation: this is the part often neglected, but which always leads to the higher marks. There are usually high evaluation marks attached to the higher mark questions. Evaluation means stepping back after doing the knowledge, application and analysis and being critical of what you have just written. You can usually signal this to the examiner by using words such as "however', 'but', 'on the other hand', 'nevertheless'. Examples of evaluative writing 'The Bank of England has raised interest rates in order to reduce AD- however, low unemployment and rising house prices have continued to support high consumer confidence, with the result that consumption growth has shown no sign yet of slowing down..... "Higher interest rates might be used to reduce consumption demand; on the other hand, raising income tax rates might be a more effective way of doing so. 'Raising income tax rates should reduce consumption demand, and therefore inflation, but raising expenditure taxes like VAT, while they may cut demand and inflation in the long run, actually raise inflation in the short run, as VAT is included in the RPIX inflation measure. How do we evaluate? a) When you have analysed, be critical of what you have just written. Is there another side of the story? Can you write 'however' etc. and show that you can think of another way of looking at the question? b) Does your analysis depend upon a particular set of assumptions? Are you holding certain factors constant to make your analysis? Can you relax these assumptions and get a different answer-'on the other hand, if we change this assumption, then the answer would be....' c) Can you say what is the most important thing in a list you have produced? This is called 'prioritising'. For example, you might have analysed how higher interest rates and higher income tax rates might reduce AD-you could evaluate by saying which you think is most effective and why. d) Are there short run effects which are different from long run effects? For example, it is well know that if you reduce the exchange rate the current account of the balance of payments will probably get worse before it gets better (the) Curve effect) - point out that it worsens initially is an evaluation point. e) Are there different impacts for different stakeholders? A stakeholder is anyone involved with or affected by a transaction or event. How do we know when we are being asked to evaluate? Before you start a question, highlight the words that are telling you what to do, these are the command words: Explain means knowledge, application and analysis only. Don't evaluate because you will probably be wasting your time, as there are no marks for it. The opportunity cost of evaluation when you don't need to is quite high. Evaluation key words or phrases are: evaluate; examine; to what extent; assess; discuss. If you find an instruction to evaluate, make sure you do it. Remember that you can always change assumptions and you can usually prioritise. Make it a habit.