Questions on fiscal policy
Assuming the economy is in an initial equilibrium at X, identify where the new equilibrium will be if:
- There is a rise in public sector borrowing
- There is a rise in government government subsidies to the motor industry
- The government spends less on defence
- The basic rate of income tax is raised
- The VAT rate is cut from 20% to 15%.
- Analyse the likely impact on the UK economy of an increase in government spending on higher education.
- What are the main disadvantages of an increase in income tax, assuming the economy has an output gap?
- What are the main disadvantages of an increase in government spending not matched by an increase in taxation?
- Distinguish between automatic and discretionary fiscal policy.
- How will the recent financial crisis affect the UK’s national debt?
- Why is fiscal policy more dominant than monetary policy during the current economic recession?
- Give three advantages and three disadvantages of using government spending to regulate aggregate demand in the UK economy.
- Evaluate ‘crowding out’ theory in the light of current government policy towards the financial crisis.