Question 1
What is not likely to be included in a government budget?
A
anticipated tax revenue
B
changes in exchange rates
C
forecast government borrowing
D
proposed government spending
Covered syllabus points
Question 2
[Maximum number: 1]
Which role is not performed by a government?
A
paying dividends to shareholders
B
promoting international trade agreements
C
providing state benefits
D
subsidising merit goods
A
Question 3
[Maximum number: 8]
In April 2023, a French cosmetics firm merged with an Australian cosmetics firm. It is expected the merger will lower average total cost as the new firm is likely to benefit from greater internal economies of scale. A manager stated that a key aim is to make the firm's production more sustainable by using raw materials taken from renewable sources. In most countries, the cosmetics firm's products, including perfume, are taxed at a higher rate than food.
Discuss whether or not perfume should be taxed at a higher rate than food.
Discuss whether or not perfume should be taxed at a higher rate than food.
In assessing each answer, use the table opposite.
Why it should:
- perfume is a luxury whereas food is a necessity
- rich spend more on perfume than the poor
- taxing food more may increase poverty as poor spend a high proportion of their income on food
- perfume is less likely than food to be a merit good
- a higher price for perfume will not significantly contribute to inflation, not a significant item in CPI
- perfume may be imported while food may be supplied by domestic firms.
Why it should not:
- demand for perfume may be elastic and so may not raise much revenue. In contrast, inelastic demand for food so may raise high tax revenue
- perfume may be an important domestic industry. Higher taxes may result in closure / unemployment
- some food is a demerit good e.g. food with a high sugar content
- taxing demerit food may improve health
- taxing food may reduce obesity.
Level
3
Level & \multicolumn{1}{|c|}{ Description } & Marks
1 &
There is a simple attempt at using
economic definitions and terminology.
Some reference may be made to
economic theory, with occasional
understanding.
1-2
0
A mark of zero should be awarded for
no creditable content.
\end{tabular}
Question 4
[Maximum number: 2]
Japan has faced significant periods of deflation in recent decades. Despite efforts to stimulate the economy through fiscal policy measures and monetary policy measures, economic growth remains low. Some economists have also argued that the monetary policy used by the central bank is one of the causes of low productivity in Japan.
Identify two fiscal policy measures.
Identify two fiscal policy measures.
- government spending (1)
- taxation (1)
If more than two measures are given, consider the first three.
Accept two types of spending, or two types of taxes.
Allow contractionary (1) expansionary (1) measures.
Question 5
[Maximum number: 6]
There are several policy measures a central bank or government can use to reduce unemployment. One policy measure a government could use to reduce unemployment is to increase its spending on building houses. The Federal Reserve, the central bank of the US, has two main aims. One is to maintain price stability and the other is to achieve full employment. Some central banks also have economic growth as a target, but none have HDI value as a target.
Analyse how an increase in government spending on building houses could reduce unemployment.
Coherent analysis which might include the following.
An increase in government spending on building homes may increase demand for building workers (1)
may increase demand for building materials (1)
demand for building materials workers / other workers related to building industry (1)
labour is a derived demand (1)
reduce structural unemployment (1)
increase incomes (1)
increase consumer expenditure (1)
increase total demand (1)
reduce cyclical unemployment (1)
increase GDP / economic growth (1)
may increase quality of homes (1)
improve health (1)
fewer workers may lose their jobs because of illness (1)
increase labour productivity which may increase demand for labour (1)
increase supply of houses (1)
reduce price of houses (1)
improve mobility of labour (1).
Reward, but do not expect reference to multiplier / multiplier
effects.
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