22 questions on Fiscal Policy (AQA specification 2.5.1) from the A-Level Economics papers, 2017–2024. Every question links to the official mark scheme at the page its answer begins on.
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Extract E (lines 17–18) states: ‘A low rate of corporation tax has also contributed to both short-run and long-run economic growth.’ With the help of a diagram, explain how a low rate of corporation tax may cause short-run and long-run economic growth.
Evaluate the view that increasing taxation is the best way to reduce a budget deficit.
Using the data in Extract A (Figure 1), calculate the difference between Ireland’s corporation tax rate and the mean corporation tax rate of the other five European nations. Give your answer to one decimal place.
Extract C (line 13) states: ‘High economic growth rates allowed Ireland to run a budget surplus in 2018 and 2019.’ With the help of a diagram, explain how high economic growth could help to create a budget surplus.
Extract B (lines 1–3) states: ‘Ireland has dropped its low-tax policy of the past 18 years, which had helped to persuade some of the world’s biggest companies, including Google and Facebook, to site their European headquarters in Ireland.’ Using the data in the extracts and your knowledge of economics, assess the view that a rise in Ireland’s corporation tax rate is likely to have a damaging effect on its macroeconomic performance.
Extract E (lines 15–17) states: ‘Policies were put in place to reduce the money supply and reduce government spending. The control of inflation became the main target of UK government macroeconomic policy.’ Using the data in the extracts and your knowledge of economics, evaluate the view that achieving a low and stable rate of inflation should be the main economic objective of governments.
2.4.3 Central Banks and Monetary Policy · 2.5.1 Fiscal Policy
Explain how the data in Extract A (Figures 1 and 2) show that in 2012 Greece was more likely to have a problem with its national debt than the UK.
Extract B (line 9) states: ‘The government spending cuts also severely damaged private-sector jobs.’ With the help of a diagram, explain how a reduction in government spending could increase unemployment in the private sector.
2.5.1 Fiscal Policy · 2.2.4 The Multiplier
Extract C (lines 17–18) states: ‘Some argue that the UK should increase taxes rather than add to the national debt.’ Using the data in the extracts and your knowledge of economics, evaluate the view that an increase in a country’s national debt is damaging for its economy.
Assess policies which can be used to reduce cyclical instability in the UK.
Explain the possible causes of a falling budget deficit.
To what extent do you agree that reducing the budget deficit is more important to the UK’s macroeconomic performance than reducing the current account deficit on its balance of payments? Justify your answer.
2.5.1 Fiscal Policy · 2.1.1 Objectives of Government Policy
After considering Extract D, and the original evidence in Extracts A, B and C, would you recommend that the government implement a further substantial increase in the National Living Wage? Justify your recommendation.
Using the data in Extract D (Figure 3), calculate, to the nearest pound, the amount of income tax payable for someone in Scotland earning £13 500.
Explain how the data in Extract D (Figure 2) show that the UK’s public finances have been improving since 2010.
Extract E (lines 11–12) states ‘If growth could be increased, the budget deficit would fall much faster.’ With the help of a diagram, explain why a higher rate of economic growth is likely to reduce the budget deficit.
Extract F (line 1) states ‘In most of the UK, reducing the budget deficit has focused on austerity rather than tax rises.’ Using the data in the extracts and your knowledge of economics, evaluate the view that there is a strong case for significant increases in UK income tax rates.
After considering Extract E, and the original evidence in Extracts A, B, C and D, would you recommend that the Government should increase its spending on housing? Justify your recommendation.
Explain how fiscal policy can be used to try to improve the supply side of an economy.
Evaluate whether achieving a budget surplus is a desirable objective of economic policy.
Explain how changes in both government spending and taxation might affect the level of economic activity.
Evaluate the economic consequences for the UK economy of a significant shift in the burden of taxation from direct taxes to indirect taxes.
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