IAI Actuarial Core Principles · Business Economics
Recent Macroeconomic History for CB2 Business Economics
Recent macroeconomic history is the sequence of major economic episodes since 1945: Bretton Woods, 1970s stagflation, monetarism, the Great Moderation, 1990s crises, the 2007-08 crisis, post-crisis policy and the COVID inflation surge. To score, link each episode to its cause, the policy response and the theory it supported or challenged.
What this chapter covers
This chapter tells the story of the world economy from 1945 to today. Each topic is one episode: a fixed exchange rate system, an oil price shock, a change in policy thinking, a long calm period, a run of crises, a global banking collapse, an unusual policy response, and a pandemic followed by inflation.
The chapter is not a list of dates. It is a record of how events pushed economists and policymakers to change their minds. Stagflation damaged the case for simple Keynesian demand management. Monetarism and inflation targeting followed. The 2007-08 crisis then challenged ideas about efficient financial markets and light regulation. Post-crisis policy and COVID tested central banks again.
It connects directly to the rest of CB2. The macroeconomics material on inflation, unemployment, money, exchange rates, fiscal and monetary policy and economic schools gives you the tools. This chapter gives you the real cases to apply them to. Examiners like questions that ask you to explain an episode using those tools.
Macroeconomics carries the largest share of the CB2 syllabus, and this chapter supplies the examples that turn a textbook answer into a strong one. Written questions often ask you to explain a event, compare two policy responses or judge a policy. If you can name the cause, the mechanism and the outcome, you can earn marks across several questions. The material is also useful for the actuarial work you will do later, because inflation, interest rates and crises drive liabilities and asset values.
Recent macroeconomic history: topics in the order to study them
- 1Post-War Economic Order and Bretton WoodsIt sets the starting framework of fixed exchange rates and Keynesian thinking that later episodes break away from.
- 21970s Stagflation and the Oil ShocksIt shows why the post-war system and demand management came under strain, and it explains the shift in thinking that follows.
- 3Monetarism and the Neoliberal TurnIt is the intellectual response to stagflation, so it makes sense straight after the 1970s.
- 4The Great Moderation and Inflation TargetingIt shows the policy framework that emerged from the monetarist turn and the calm period that seemed to support it.
- 5Financial Crises of the 1990s: Asia, Japan and Emerging MarketsThese crises show early weaknesses in finance and exchange rates, and they prepare you for the larger 2007-08 crisis.
- 6The 2007-08 Global Financial CrisisIt ends the Great Moderation story and builds on the earlier crisis lessons about leverage, banks and contagion.
- 7Post-Crisis Policy: QE, Austerity and Eurozone CrisisIt covers the policy response to the 2007-08 crisis, so you need the crisis first.
- 8COVID-19 Shock, Inflation Surge and Recent DevelopmentsIt is the latest episode and draws on every earlier theme: supply shocks, monetary and fiscal policy, and inflation targeting.
How to prepare Recent macroeconomic history
Treat each episode as a short case study with the same structure. This makes the chapter easy to revise on a phone and easy to write up under exam time pressure.
- Build a one-page timeline of the eight episodes in order, with only a few key words per episode. Use it as your map.
- For each episode, write four lines: background, cause, policy response, outcome. Keep each line to one sentence.
- Link each episode to CB2 theory. For example, connect stagflation to the Phillips curve and aggregate supply, and connect QE to monetary policy at low interest rates.
- Note which economic school gained or lost support after each episode. This ties the chapter to the economic schools topic.
- Practise comparisons, such as the 1970s oil shocks and the post-COVID inflation, or the 1990s crises and 2007-08. Write the similarities and differences in a short list.
- Answer past-style written questions in 10 to 15 minutes each, using your four-line structure. Then check for missing mechanisms.
- Finish with a short set of multiple-choice style checks on definitions and cause and effect, such as what stagflation is and what QE does.
Common mistakes in Recent macroeconomic history
Memorising dates and events without explaining causes.
Fix: For every episode, write the cause and the mechanism in one or two sentences. Marks go to the explanation, not the date.
Calling every inflation episode stagflation.
Fix: Use stagflation only when high inflation occurs with weak output and high unemployment. Explain the supply-shock link.
Mixing up the causes of the 1990s crises with the 2007-08 crisis.
Fix: Keep a short comparison: the 1990s crises centred on exchange rates and foreign borrowing in specific regions or countries, while 2007-08 centred on leverage and mortgage-linked assets in the global financial system.
Describing policies without evaluating them.
Fix: Add one benefit and one limitation for each policy. A balanced answer scores higher on evaluation questions.
Treating the chapter as separate from economic theory.
Fix: Tie every episode to a model or school, such as aggregate supply, the quantity theory or Keynesian demand management.
Stating recent developments with confidence on uncertain details.
Fix: Focus on the main mechanisms and policy responses. Avoid precise figures unless your study material gives them.
Last-day revision: Recent macroeconomic history
- Bretton Woods: post-war system of fixed but adjustable exchange rates tied to the US dollar, with the dollar linked to gold; it broke down in the early 1970s.
- Stagflation: high inflation together with high unemployment and weak growth; it is hard to explain with a simple demand-side view.
- Oil shocks of the 1970s were supply shocks that raised costs and prices and cut output.
- Monetarism: inflation is mainly caused by excessive growth of the money supply, so control money growth.
- The neoliberal turn favoured markets, deregulation, privatisation and lower inflation as the main policy goal.
- The Great Moderation: a period of low and stable inflation and steadier growth, often linked to inflation targeting and credible central banks.
- Inflation targeting: the central bank announces a numerical inflation target and adjusts interest rates to meet it.
- 1990s crises showed the risks of fixed exchange rates, short-term foreign borrowing and weak banks.
- 2007-08 crisis: a collapse in housing and mortgage-linked assets spread through highly leveraged banks and caused a global credit freeze.
- QE: the central bank buys assets to lower long-term yields and add liquidity when the policy rate is near zero.
- Austerity means cutting government spending or raising taxes to reduce deficits; critics argue it can slow recovery.
- COVID-19 combined demand collapse, supply disruption and large fiscal and monetary support, followed by an inflation surge and rate rises.
Recent macroeconomic history practice questions
- Policymakers in 2021-22 debated whether the inflation surge was 'transitory'. Suppose a central bank observes that inflation is driven mainl…
- After 2021, inflation in many countries rose partly because of supply-chain bottlenecks and energy price spikes following the Russia-Ukraine…
- Critics of austerity after 2010 argued that simultaneous fiscal consolidation in many European economies could prove self-defeating for the …
- Friedman's expectations-augmented Phillips curve is used by monetarists to argue that attempts by a government to hold unemployment below th…
- Which of the following is the strongest criticism of the view that inflation targeting and good monetary policy alone explained the Great Mo…
- The Bank of Japan cut its policy interest rate close to zero in the later 1990s, yet deflation and weak demand persisted. Which conclusion i…
- Monetarist economists of the Friedman school argued that, in the long run, a sustained rise in the money supply well above the growth of rea…
- Following the 2008 crisis, central banks in advanced economies adopted quantitative easing. Which sequence best describes the intended trans…
Recent macroeconomic history in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Recent macroeconomic history: frequently asked questions
How should I study recent macroeconomic history for CB2?
Study the eight episodes in order and use the same four-part structure for each: background, cause, policy response and outcome. Link each one to a theory in the macroeconomics chapters. This makes your answers both accurate and easy to revise.
Do I need to remember exact dates and statistics?
Know the broad periods and the order of events. Exact figures matter less than the cause, mechanism and result, unless your study material stresses a number. Do not quote figures you are not sure about.
How is this chapter tested in the exam?
It can appear in both multiple-choice questions and written questions. Multiple-choice questions usually test definitions and cause and effect. Written questions usually ask you to explain, compare or evaluate an episode or policy using economic theory.
What is the best way to compare the 1970s and the post-COVID inflation?
Both involved supply-side shocks that raised prices. Compare the causes, the role of monetary policy and expectations, and how central banks responded. Note that the policy frameworks in place were different, because inflation targeting existed by the time of the post-COVID surge.