Practise 3.3.8 (HL) Sustainable government debt in IB Economics HL by reviewing the concepts and applying them to marked questions.
Economists agree that travel by train, instead of by plane or car, should be promoted in Europe because of environmental issues. However, the growth of passenger rail travel in Spain has slowed down. During 2013, millions of passenger-kilometres* travelled on railways in Spain increased by 6.72 %, while in 2019 the annual increase only amounted to 1.36 %.
* passenger-kilometres measure the distance travelled by all passengers over one year
Figure 4 illustrates the monopoly-market structure for tickets on a train between Madrid and Barcelona in Spain. MC is marginal cost, AC is average cost, D is the demand for tickets and M R is marginal revenue.
Figure 4
With two references to the data provided in Table 2, explain the difference between a budget deficit and government debt.
To reduce the possible risk from unsustainable government debt, policies could be chosen that do not require large increases in government expenditure. For example, regulations could require that any abnormal profits earned by a railway firm must be directed to investments in upgrading the railway sector.
Alternatively, the government could promote consumer nudges to influence how people choose to travel.