Fiscal deficits & the national debt

(a) With reference to Figure 1, explain the distinction between direct and indirect taxation.

(b) With reference to Extract A, examine two factors influencing the short‑run aggregate supply of the German economy.

(c) With reference to the information provided and your own knowledge, assess the likely macroeconomic effects of the German government’s budget deficit.

(d) With reference to Extract B, discuss the impact of the planned investment by Intel in a new semiconductor factory on Germany’s aggregate demand. Use an aggregate demand and aggregate supply diagram in your answer.

(e) Discuss supply‑side policies the German government could use ‘to improve its economic performance’ (Extract A, line 6).

With reference to Figure 1, explain the distinction between direct and indirect taxation.

With reference to Extract A, examine two factors influencing the short‑run aggregate supply of the German economy.

With reference to the information provided and your own knowledge, assess the likely macroeconomic effects of the German government’s budget deficit.

With reference to Extract B, discuss the impact of the planned investment by Intel in a new semiconductor factory on Germany’s aggregate demand. Use an aggregate demand and aggregate supply diagram in your answer.

Discuss supply‑side policies the German government could use ‘to improve its economic performance’ (Extract A, line 6).

In 2021, the US total GDP was $23 trillion and national debt was $28.4 trillion.

(Source: adapted from https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=US and https://fiscaldata.treasury.gov/national-debt/)

Calculate the US national debt in 2021 as a percentage of GDP.

Explain the relationship between a fiscal deficit and the national debt.

Which one of the following is the most likely consequence of an increase in the US national debt?

An increase in:

After the Global Financial Crisis of 2008, the US President introduced expansionary fiscal policies of $800 billion. The International Monetary Fund estimated that the multiplier at the time was approximately 1.5.

(Source adapted from: https://www.economist.com/the-economist-explains/2016/09/07/ what-is-the-keynesian-multiplier)

Which one of the following is a withdrawal from the circular flow of income?

Calculate the total final increase in US aggregate demand as a result of the President’s ‘expansionary fiscal policies’, assuming no other changes.

Explain the impact of annual fiscal deficits on the US national debt.

Explain one reason why a country such as Germany wants to avoid an increase in the national debt relative to GDP (Figure 2).

Examine two likely effects of the forecast change in the rate of unemployment between 2019 to 2020, on firms in Germany. Refer to Figure 4 in your answer.

Discuss the likely impact of investment in new technology on the profitability of firms in Germany, as described in Extract C line 20. Use a cost and revenue diagram to support your answer.

EITHER

Evaluate the microeconomic and macroeconomic factors which are likely to determine the level of economic growth in Germany relative to other developed economies.

Evaluate the microeconomic and macroeconomic impacts of ‘a much more expansionary fiscal policy’ (Extract C line 23) on the German economy.

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Japan’s budget deficit for 2017/18 is expected to be 4.6% of GDP. Its national debt is forecast to increase to above 250% of GDP by 2019.

Evaluate the impact of a large fiscal deficit and national debt on a country’s economy.

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The UK has experienced a budget deficit since 2001. The government aimed to reach a budget surplus by 2019, but in 2016 this target was abandoned.

(Source: adapted from https://www.gov.uk/government/news/autumn-statement-2016-some-of-the-things-weve-announced)

Explain one likely reason why the 2019 budget surplus target was abandoned.

Explain the likely impact of abandoning the budget surplus target on the UK national debt.

If a government takes decisions to target a budget surplus, this is an example of:

With reference to Extract D (line 18), explain the meaning of the term ‘output gap’. Use an aggregate demand and aggregate supply diagram in your answer.

With reference to Figures 4 and 5 and your own knowledge, examine the relationship between the national debt as a proportion of GDP and the fiscal deficit.

Discuss the likely impact of the National Living Wage on the profitability of firms. Use a cost and revenue diagram in your answer.

EITHER

With reference to the information provided and your own knowledge, evaluate the likely microeconomic and macroeconomic influences on the UK’s international competitiveness.

With reference to the information provided and your own knowledge, evaluate the microeconomic and macroeconomic effects of a government policy of cutting public expenditure rather than raising taxes as a means of reducing a fiscal deficit.

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