4.5 - Causes of the Deficit

Question 1

Which cyclical factors affect the size of the deficit?

Answer 1

Unemployment
Profit
Consumer Spending
Stabilisers

Question 2

How does unemployment affect the deficit?

Answer 2

Higher unemployment
Reduced tax revenues
More welfare payments

Question 3

How does business profitability affect the deficit?

Answer 3

Rising profit increases corp tax
Productivity + Multipliers

Question 4

How does consumer spending affect the deficit?

Answer 4

Increased VAT revenue
Potential profitability factors

Question 5

How do stabilisers affect the deficit?

Answer 5

Weak economy
Natural increases in spending + tax reductions
Deficit grows

Question 6

Which long run factors affect the deficit?

Answer 6

Tax base + rates
Welfare state
Relative size of welfare payments
Demographics
Public sector efficincy

Question 7

How does the size of the welfare state affect the deficit?

Answer 7

Affects amount of welfare payments
Higher proportion => Larger deficit

Question 8

How do demographic factors affect the deficit?

Answer 8

Ageing population, labour migration
More welfare payments

Question 9

How do the tax base + rates affect the deficit?

Answer 9

Growing/shrinking tax revenue

Question 10

How does public sector efficiency affect the deficit?

Answer 10

Efficiency of allocation of services
Encourage/Discourage further spending