One thing that students away struggle with, especially early on in the course, is Evaluation and how they go about actually doing it. Quite often, instead of critically evaluating their Analysis, they go about proving why their Analysis is wrong – which isn’t good evaluation. Evaluation needs to be about ways in which the Analysis you’ve just written is limited in its effectiveness or validity.
The easiest way to do this is to say whether there are scenarios in which the Chain of Reasoning in your Analysis doesn’t hold up. For example:
Analysis: “An increase in Real Incomes as the result of an Economic Book will generally lead to higher Consumption of Goods and Services and, therefore, Increased Aggregate Demand”
Evaluation: However, the increase in Real Incomes will not have a large impact on Consumption if Marginal Propensity to Consume is low. In this case, Consumers may instead choose to use this money for saving and imports, or it may be taxed by the government
As you can see, I’m not saying that my Analysis was wrong – I’m just saying that there is a scenario in which its effectiveness may not be as strong. And there are a few classic ways in which you can Evaluate in Economics:
- Short Run vs Long Run: Is the policy that you’ve written about more effective in the Long Run as opposed to the Short Run? Vice versa? For example, a Supply Side Policy such as an increase in funding for Primary Schools won’t have a significant impact for at least 7 years (11 Year Olds take 7 years until they can enter the workforce, of course)
- Opportunity Cost: Is the policy that you’re talking about expensive, or requires large amount of Capital and/or Labour? If that money or those resources could have been better used elsewhere then there’s likely to be a large Opportunity Cost of this project. Think of HS2, costing up to £92 Billion – could we have better used that money elsewhere?
- Demographic Impact: Will the impact of what you’ve written about be felt more by one sector of society than another? For example, in a recession we can assume that unemployment will rise – but it’s often a harsher rise in unemployment for younger people, so they’ll be hardest hit. Likewise, a hike in National Insurance won’t affect anyone over the State Pension Age, as they don’t pay it
- Regional Impact: Will the impact of what you’ve analysed by felt more or less in different parts of the country? Roads being built and new Train stations being opened will be far more useful in combatting geographic immobility of labour in rural parts of the country compared to Central London.
- Data Validity: Exam boards will even reward you if you evaluate by saying that the data doesn’t give you a full and complete view of the situation. Does the data only give you GDP and not GDP per Capita? Then you may not be able to fully analyse the issue at hand…
- Schools of Thought: In Macro, it may well be the case that a Keynesian Economists and Classical Economists would have a different interpretation of how an issue would affect the economy – and pointing that out is good Evaluation. Likewise, in Micro, Behavioural Economists may argue that a policy is ineffective due to various Heuristics and Behavioural Failures.
- Proportionality: Looking at the magnitude of change is useful too. A 1% increase in Excise Duties on Alcohol isn’t that big, but a 20% increase is massive. Obviously they would have very different impacts, so it can be a useful point to say just how big the impact would be.
- And many more…
Crucially, if there’s one piece of advice I can give, just remember the phrase: It depends on…
TJA Economics 