Fiscal policy

Question 1

UK debt as a % of GDP is

Answer 1

104% of GDP

Question 2

Examples of increased government spending

Answer 2

• Inequality- transfer payment- JSA, related employment support allowance, income support, child tax credit, working tax credit.
• Market failure reduction- UK national defence and NHS system.
• Education- Sunak and his English and Maths A level and government subsidies for university tuition fees.
• Automatic stabilisers- Savings ratios fell by 10% in 2020-2022 after the government spent more money
• Multiplier effect-
• Unemployment- Jeremy Hunt’s childcare policy- encourage work

Question 3

Decreased government spending

Answer 3

• Crowding out- EU bond market in 2012- however depends on spare capacity- 2009/13 recession in the UK, high borrowing however IR did not rise
• Inflation
• Depends on the stage of the economy
• Inefficient spending £7.6bn NHS
• LR—> burden on taxpayers

Question 4

Increased tax

Answer 4

• Gov revenue
• Disincentive
• Tax evasion
• Brain drain

Question 5

Reduced tax

Answer 5

• Income effect
• Balanced budget- No burden on tax payers
• Increase economic growth- increase AD- multiplier effect