Text B, Paragraph 1
In response to rising unemployment, the government in Spain has introduced measures labelled as expansionary fiscal policy. Economists are divided on whether these actions will be sufficient to stimulate growth.
Define the term expansionary fiscal policy as indicated in bold (Text B, Paragraph 1).
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Text E, Paragraph 1
Public debates in Italy have focused on the country’s rising public debt, with various proposals for reducing the burden on future generations. Some advocate for austerity measures, while others suggest more innovative solutions.
Define the term public debt as indicated in bold (Text E, Paragraph 1).
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Text C, Paragraph 2
Governments around the world rely on a variety of revenue sources to finance their operations. Decisions on how to balance these sources are critical to maintaining fiscal stability.
State two sources of government revenue as found in (Text C, Paragraph 2).
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Text D, Paragraph 2
Debates over the allocation of transfer payments have dominated political discussions in several countries, particularly regarding support for unemployed and elderly citizens. These payments play a significant role in social welfare.
Define the term transfer payments as indicated in bold (Text D, Paragraph 2).
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Text A, Paragraph 3
India’s government has been examining various approaches to curb inflation. The role of fiscal policy in controlling price levels has been a particular focus in recent economic discussions.
Describe how fiscal policy can be used to reduce inflation as indicated in bold (Text A, Paragraph 3).
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Text C, Paragraph 3
The concept of a balanced budget has become a contentious issue in South Korea, as policymakers seek to align government revenues and expenditures to ensure fiscal sustainability.
Define the term balanced budget as indicated in bold (Text C, Paragraph 3).
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Text D, Paragraph 3
Countries recovering from economic downturns are increasingly turning to expansionary fiscal policy to boost aggregate demand. Analysts are watching closely to see whether these measures will have the desired effect on economic recovery.
Describe the impact of expansionary fiscal policy on aggregate demand as indicated in bold (Text D, Paragraph 3).
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Extract C, Paragraph 3
The Ecuadorian government has announced a 15% increase in public infrastructure spending for the upcoming fiscal year. This includes new road networks, port facilities, and digital infrastructure projects. The finance minister argues this stimulus is necessary as GDP growth has fallen to 0.8% and unemployment has risen to 7.2%. Critics argue this spending could lead to inflationary pressures in the construction sector.
Using an AD/AS diagram, explain how Ecuador's increased government spending might affect the macroeconomic equilibrium in the short run.
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Extract A, Paragraph 2
Ghana's finance ministry has announced plans to reduce inflation through contractionary fiscal measures. These include a 10% reduction in government spending on non-essential services and postponement of several infrastructure projects. The government aims to bring inflation down from its current rate of 8.5% to within the target range of 2-4%, though some economists warn about the impact on economic growth.
Using an AD/AS diagram, explain how Ghana's contractionary fiscal policies might help control inflationary pressure.
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Extract B, Paragraph 2
The government of Jordan has announced a comprehensive review of its tax system. Currently, income tax and corporation tax generate 45% of tax revenue, while Value Added Tax (VAT) and excise duties contribute 55%. The finance ministry proposes increasing VAT on luxury goods from 16% to 20% while maintaining income tax rates. Small businesses argue that collecting indirect taxes creates a significant administrative burden, while labour unions oppose any expansion of indirect taxation, claiming it disproportionately affects lower-income households.
Explain the difference between direct and indirect taxation as a method of raising government revenue in Jordan.
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Extract C, Paragraph 1
Latvia's parliament is debating the allocation of its annual budget amid competing demands for resources. The finance minister emphasises the need to balance long-term investment in infrastructure with immediate public service needs in healthcare. Opposition parties argue that the most recent spending balance fails to address both immediate social needs and future economic growth. Economic analysts suggest the distribution of expenditure will significantly impact Latvia's fiscal position and growth potential over different time horizons.
Using examples, explain the difference between capital and current expenditure in Latvia's budget.
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Extract C, Paragraph 2
The Philippine government has announced a 50 billion peso stimulus package targeting rural infrastructure development. Economic data shows that for every additional peso earned, households save 0.15 pesos, spend 0.20 pesos on imports, and pay 0.15 pesos in tax. The central bank suggests these household behaviours will significantly influence the final impact of the stimulus on national income.
Calculate the size of the Keynesian multiplier and explain how the multiplier will impact the national income of the Philippines.
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Extract B, Paragraph 2
Tunisia's economic planning commission has analysed household behaviour following recent government initiatives. Data shows that for each additional dinar of income, households typically save 0.2 dinars, spend 0.15 dinars on imports, and pay 0.15 dinars in tax. The commission's report highlights how these spending patterns will affect the impact of a proposed 500 million dinar infrastructure programme.
Calculate the size of the Keynesian multiplier and explain how the marginal propensities to withdraw affect the size of Tunisia's multiplier.
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Extract C, Paragraph 2
Ireland faces a recessionary gap estimated at €4.5 billion. Recent economic analysis shows that Irish households typically spend 70% of any additional income on domestic goods and services. The government's economic advisory council is using this information to determine the size of fiscal stimulus needed to close the output gap.
Calculate the government spending required to close Ireland's recessionary gap, showing all your workings.
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Extract C, Paragraph 1
The Argentinian economy has entered a recession, with GDP falling by 2.5% in the last quarter. Tax revenues have automatically decreased as corporate profits decline and unemployment rises to 7.2%. Simultaneously, government spending on unemployment benefits has increased by 15%. Economic analysts note these automatic changes in fiscal position are helping to moderate the economic downturn.
Using an appropriate diagram, explain how automatic stabilisers might help reduce the severity of Argentina's recession.
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Extract A, Paragraph 1
Portugal's government has announced plans to borrow €8 billion through bond issues to finance new infrastructure projects. Private sector organisations are concerned about crowding out as market interest rates have already risen from 3% to 4.5% this year. Several planned corporate investment projects have been postponed, with businesses citing higher borrowing costs as the main factor.
Using an appropriate diagram(s), explain how Portugal's increased government borrowing might affect private sector investment.
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