Fisical Policy

Question 1

Microeconomics reasons for using fisical policy

Answer 1

Pigouvian taxes to correct market failure e.g on petrol and alcohol

Spending on merit and public goods e.g schools and light houses

Question 2

Macroencomics reasons for using fisical policy

Answer 2

Correcting inequality in distribution of income and wealth

(If taxed on wealth discourages savings and short term inflationary pressure)

(And equality of income will promote AD so better living standards)

Keynesian coutrer cyclical demand management

Question 3

3 ways fisical policy can influence AD

Answer 3

Reduce tax

Increase tax

Increase government spending

Question 4

3 ways fiscal policy can influence aggregate supply

Answer 4

Government spending on R and D (LRAS)

Reduce coroporation tax (SRAS)

Govement spending in education increasing quality of capital increasing LRAS

Question 6

Gov spending 2025-26 from 2024 autumn budget

Answer 6

Most pensions

Lowest unemployment benefits

Question 7

OBR 5 main roles

Answer 7

Economic and fisical forecasting

Evaluating performance against target

Sustainability and balance sheet analysis

Evaluation of fisical risks

Scrutinising tax and welfare policy costing