Edexcel IGCSE Economics 2.1.2 Government Policies Questions

Practise applying fiscal, monetary, supply-side and control policies to data on taxes, spending, interest rates and regulation.

Exam points

identify whether a policy is fiscal, monetary, supply-side or a government control
explain interest rate changes, tax changes or spending changes using country data
evaluate policy trade-offs for unemployment, inflation, public finances or the environment

Covered syllabus points

2.1.2.a Fiscal policy – government revenue and government 2.1.2.b Monetary policy – focused on interest rate changes 2.1.2.c Supply-side policy 2.1.2.d Government controls

[Maximum number: 5]

(a)

Describe one impact on consumers of an increase in interest rates.

[ 2 ]

(b)

In December 2023, Portugal reported a fiscal surplus of €6.2bn, which was €3.4bn higher than 12 months before.

Explain one possible benefit of a fiscal surplus for a country such as Portugal.

[ 3 ]

[Maximum number: 1]

Which one of the following is an example of a supply-side policy to increase output?

Increasing income tax

Increasing interest rates

Increasing the school-leaving age

Increasing business taxes

[Maximum number: 10]

(a)

Which one of the following is an advantage of pollution permits?

They encourage unlimited industrial emissions

They reduce overall pollution by setting emission limits

They allow firms to ignore environmental regulations

They discourage investment in green technologies

[ 1 ]

(b)

In 2025, the Government of Italy is to reduce income tax rates for some income tax payers. The higher rate of income tax is to remain the same. The Italian Treasury said that the scheme is 'aimed at simplifying and reducing the tax burden, encouraging investment and recruitment'.

Figure 4

With reference to the data above and your knowledge of economics, assess whether lower income tax rates will encourage more people to work in a country such as Italy.

[ 9 ]

AO2 (3 marks)/AO3 (3 marks)/AO4 (3 marks)

AO2 and AO3
- Reducing income tax rates to 23% and 33% may motivate people to work additional hours or seek better-paying jobs, knowing they will keep more of their income
- More favourable tax conditions might encourage those not currently working, including young people, to enter the workforce
- With less income going to taxes, individuals might be willing to work more hours or take on additional jobs, increasing overall labour supply
- Lower taxes might attract skilled workers from abroad boosting productivity and innovation in the Italian
- As firms benefit from individuals having more disposable income and potentially investing, this can lead to job creation, further encouraging employment

AO4
- However, reducing taxes might lead to a significant loss in government revenue, affecting public services and investment
- Less tax revenue could mean cuts to crucial public services like healthcare, education or infrastructure affecting the quality of life for the citizens of Italy
- The higher rate of income tax remains at 43% meaning those with the highest incomes may not feel incentivised to work harder
- While there might be immediate boosts to the economy, the long-term effects of reduced government revenue could lead to economic challenges
- Other factors like job availability, wages, working conditions and childcare may have a more substantial impact on employment decisions than tax rate changes

Level

Mark

Descriptor

0

No rewardable material.

Level 1

1-3

- Demonstrates basic knowledge and understanding by developing relevant points. Limited application of economic terms, concepts, theories and calculations (AO2).

- Information presented will lack selectivity and organisation. Interpretation of economic information will be limited, with a lack of analysis of issues (AO3).

- Only offers one viewpoint, meaning there is an unbalanced and incomplete evaluation, showing limited understanding and awareness (AO4).

Level 2

4-6

- Demonstrates partial knowledge and understanding by developing relevant points. Partial application of economic terms, concepts, theories and calculations (AO2).

- Information presented will demonstrate some selectivity and organisation. Interpretation of economic information will be good, with some analysis of issues (AO3).

- Offers more than one viewpoint but the argument may lack balance, leading to an evaluation that may not demonstrate full understanding and awareness (AO4).

Level 3

7-9

- Demonstrates clear knowledge and understanding by developing relevant points. Appropriate application of economic terms, concepts, theories and calculations (AO2).

- Information presented will demonstrate excellent selectivity and organisation. Interpretation of economic information will be excellent, with a thorough analysis of issues (AO3).

- Offers more than one viewpoint. The argument is well balanced and coherent, leading to an evaluation that demonstrates full understanding and awareness (AO4).

[Maximum number: 3]

In December 2023, Portugal reported a fiscal surplus of €6.2bn, which was €3.4bn higher than 12 months before.

Explain one possible benefit of a fiscal surplus for a country such as Portugal.

[Maximum number: 2]

Describe one impact on consumers of an increase in interest rates.

[Maximum number: 1]

Which one of the following is an advantage of pollution permits?

They encourage unlimited industrial emissions

They reduce overall pollution by setting emission limits

They allow firms to ignore environmental regulations

They discourage investment in green technologies

All question bank results loaded

Covered syllabus points

Question 1

Question (a)

Question (b)

Question 2

Question 3

Question (a)

Question (b)

Question 4

Question 5

Question 6