Cambridge International as and a level Economics Ebook

Scarcity and choice, progress and development: 
Choice 
and progress are key concepts in deciding which policy 
measures a government should select to achieve a 
particular macroeconomic objective. In making its choice, 
a government will consider which policy measure is most 
likely to result in macroeconomic progress.
KEY CONCEPT LINK
SELF-ASSESSMENT TASK 
5.8
Problems facing the Turkish economy
At the start of 2014 the Turkish economy was facing a 
number of macroeconomic problems. These included a 
rising inflation rate and a growing account deficit with 
declining exports.
The Turkish government had set an inflation target of 
5% but in January 2014 the inflation rate was 7%. The 
Turkish central bank raised the interest rate to 7.75% 
in a bid to reduce the inflation rate. It was, however, 
concerned about the eff ect this move would have on its 
exchange rate and its current account position.
The economy’s current account deficit was largely the 
result of increases in the price of oil and gas. Turkey 
was importing 97% of the energy it was consuming, 
mainly from Russia. The government had signed a 
deal with a Franco-Japanese consortium to build the 
country’s second nuclear power station. It was also 
investing more in education, in particular employing 
more teachers.
Read the feature below and then answer the questions that follow.
1
Explain why a rising infl ation rate may contribute to 
a growing current account defi cit.
2
Discuss whether a rise in a country’s interest rate 
would reduce a current account defi cit.
3
Assess the eff ect that Turkey’s supply side policy 
measures may have on the country’s imports.
125
Chapter 5: Government macro intervention 

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