Académique Documents
Professionnel Documents
Culture Documents
61-73
Name:___________________
Marks:_______/66
1. Explain the term national debt. (2)
2. Examine the uses of discretionary fiscal policy to improve macroeconomic
performance. (12)
-Define discretionary fiscal policy: govt deliberately changes taxation/ govt spending
-inflationary: cut taxes and raise spending -> describe effects (increase economic
growth, decrease unemployment, etc)
-may use AD AS diagram
(7 marks)
Evaluation:
-automatic stabilizer and explain (3 marks)
-govt may boost AD for election (short slighted)/ other limitations: lack of economic
knowledge (2 marks)
3. Explain why labour costs are relatively more significant than capital costs in
production. (4)
4. Evaluate the problems of rising budget deficit. (20)
-govt borrow to finance: increase national debt ->pay interest (opportunity costs: other
spending like education)
-govt borrowing increases -> increase interest rate -> crowding out effect: govt
spending reduce the funds available for private sector
-if printing money to finance -> inflation rises
-unsustainable : taxation < spending ->country roll over debts -> taxes must rise in the
future/ the country may deflaut
(3x 4 marks =12 marks)
Evaluation: (Potential benefits of a budget deficit)
1. Government borrowing can benefit economic growth: A budget deficit can have
positive macroeconomic effects in the long run if it is used to finance extra capital
spending that leads to an increase in the stock of national assets. For example,