What does the National and Global Economic Issues area cover?

It is the macroeconomic and international area of Advanced Higher Economics. Nationally it covers economic growth and the business cycle, inflation and unemployment and the Phillips curve, the aggregate demand and supply model and the multiplier, fiscal, monetary and supply-side policy, and the Scottish economy within the UK. Globally it covers international trade and comparative advantage, exchange rates and the balance of payments, and globalisation and economic development. The SQA frames it around critically evaluating current economic policies and their effects on the Scottish, UK and global economies.

Why is there no permanent trade-off between inflation and unemployment?

The short-run Phillips curve shows an inverse relationship: cutting unemployment by boosting demand raises inflation. But the long-run Phillips curve is vertical at the natural rate of unemployment. If a government holds unemployment below the natural rate, inflation expectations rise, the short-run curve shifts up, and unemployment returns to the natural rate at higher inflation. So demand policy cannot buy lasting low unemployment; only supply-side policy that lowers the natural rate can.

What is the difference between fiscal, monetary and supply-side policy?

Fiscal policy uses government spending and taxation to shift aggregate demand. Monetary policy, run by the central bank, uses interest rates and quantitative easing to shift aggregate demand. Both are demand-side and face the inflation trade-off near full capacity. Supply-side policy (market-based measures such as tax cuts and deregulation, or interventionist measures such as education, training and infrastructure) raises the economy's productive capacity, shifting long-run aggregate supply right, so it can raise output and lower the price level at the same time.

What economic powers does Scotland have within the UK?

The Scottish Parliament has devolved powers over income tax rates and bands on non-savings income, some welfare, and spending on health, education, training, transport, housing and economic development. Reserved to the UK government are monetary policy (interest rates), the currency, most taxation (VAT, corporation tax, National Insurance) and overall macroeconomic and fiscal policy. Scotland operates within the UK fiscal framework and a block grant adjusted by the Barnett formula, so it can shape supply-side and spending policy but cannot run a fully independent macroeconomic policy.

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SQA Advanced Higher Economics National and Global Economic Issues: a complete overview of macroeconomics, policy and the global economy

A deep-dive SQA Advanced Higher Economics guide to the National and Global Economic Issues area. Covers growth and the business cycle, inflation and unemployment, the AD/AS model and the multiplier, fiscal, monetary and supply-side policy, the Scottish economy, trade, exchange rates, the balance of payments and development.

Generated by Claude Opus 4.818 min readAdvanced HigherUpdated 2026-06-16

Reviewed by: AI editorial process; not yet individually human-reviewed

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What this area actually demands
The national economy
Macroeconomic policy
The global economy
How this area is examined
Check your knowledge

What this area actually demands

National and Global Economic Issues is the macroeconomic and international area of Advanced Higher Economics. The SQA frames it as developing the skills to "critically evaluate and discuss the effects of current economic policies, economic reports and economic thinking on the Scottish, UK and global economies". The emphasis is on current issues and evaluation: you build the macro models (AD/AS, the multiplier, the Phillips curve), apply them to live policy, and judge effectiveness, always with an eye on the Scottish context.

This guide walks through the area, then sets out the recurring exam demands. Each topic has a matching dot-point page with worked questions; this overview ties them together.

The national economy

Economic growth and the business cycle start the area: measuring real GDP, distinguishing actual from potential growth, reading output gaps, and weighing the benefits of growth against its costs, including sustainability.

Inflation and unemployment follow: their measurement, the demand-pull and cost-push causes of inflation, the types of unemployment, their costs, and the Phillips curve, an inverse short-run trade-off but a vertical long-run curve at the natural rate, so demand policy cannot buy lasting low unemployment.

The aggregate demand and supply model and the multiplier provide the analytical engine: the components of AD, the shapes of short-run and long-run AS, macroeconomic equilibrium, and how the multiplier and accelerator magnify a change in spending.

Macroeconomic policy

Fiscal and monetary policy are the demand-side tools: government spending, taxation and the budget (and the deficit-versus-debt distinction), and the central bank's interest rates and quantitative easing, each evaluated for effectiveness, including the liquidity trap.

Supply-side policy and the Scottish economy complete the policy toolkit: market-based and interventionist measures that shift long-run aggregate supply for non-inflationary growth, and the distinctive SQA content on devolved and reserved powers and the Scottish fiscal framework.

The global economy

International trade and comparative advantage open the global half: absolute and comparative advantage, the gains from trade, the terms of trade, the case for and against protectionism, and trade blocs and the WTO.

Exchange rates and the balance of payments then connect trade to finance: the structure of the balance of payments, fixed and floating systems, how a floating rate is determined, and how a depreciation affects the current account (the Marshall-Lerner condition and the J-curve).

Globalisation and economic development close the area: the causes and effects of globalisation, multinationals, measuring development beyond GDP (the HDI), barriers to development, strategies, and the IMF, World Bank and aid.

How this area is examined

A typical SQA profile for this area:

Diagrams. AD/AS, the Phillips curve, the currency market and the PPD, drawn and labelled correctly.
Data handling. Real versus nominal GDP, the multiplier, the terms of trade, the Marshall-Lerner condition, always with interpretation.
Evaluation. Policy effectiveness (fiscal versus monetary, protectionism, multinationals, aid) with a reasoned judgement.
The Scottish dimension. Devolved versus reserved powers and Scottish examples.

Check your knowledge

A mix of recall and explanation questions covering this area. Attempt them, then check against the solutions.

State the difference between actual and potential economic growth. (2 marks)
Name the four components of aggregate demand. (2 marks)
Why is the long-run Phillips curve vertical? (1 mark)
State the difference between a budget deficit and the national debt. (2 marks)
Name one economic power devolved to Scotland and one reserved to the UK. (2 marks)
State the Marshall-Lerner condition. (1 mark)

Solutions

Q1: Actual growth is the rise in real output using existing capacity (a rise in real GDP); potential growth is the rise in productive capacity, the maximum the economy could produce.
Q2: Consumption, investment, government spending and net exports (exports minus imports).
Q3: Because any attempt to hold unemployment below the natural rate raises inflation expectations, shifting the short-run curve up until unemployment returns to the natural rate at higher inflation.
Q4: A budget deficit is a yearly flow (spending above tax revenue in a year); the national debt is the accumulated stock of all past borrowing. A deficit adds to the debt.
Q5: Devolved: income tax rates and bands, or spending on health, education or economic development. Reserved: monetary policy (interest rates), the currency, VAT, corporation tax or National Insurance.
Q6: A depreciation improves the current account only if the sum of the price elasticities of demand for exports and imports is greater than one.

Sources & how we know this

Advanced Higher Economics Course Specification — SQA (Qualifications Scotland) (2024)