Fiscal & Supply-side Policies (AQA A Level Economics): Exam Questions

Exam code: 7136

3 hours22 questions
1
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1 mark

All other things being equal, which one of the following is most likely to increase the national debt?

  • Foreign companies increasing their direct investment into the economy

  • The central bank using its reserves of foreign currency to fund a trade deficit

  • The government reducing its budget surplus by increasing its expenditure on infrastructure

  • The government running a budget deficit, financed by selling bonds to foreign investors

2
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1 mark

Which one of the following is correct for a proportional tax on income?

  • The amount of tax paid increases as income increases.

  • The marginal rate of tax is lower than the average rate

  • The average rate of tax falls as income increases

  • The average rate of tax is lower than the marginal rate

3
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1 mark

The diagram below shows the aggregate demand (AD) curve, the short-run aggregate supply (SRAS) curve and the long-run aggregate supply (LRAS) curve for an economy. The economy’s initial equilibrium is at E1.

q10-paper-3-june-2019-aqa-a-level-economics

The government wants to achieve economic growth without conflicting with its long-run objective of price stability. All other things being equal, which one of the following policy combinations is most likely to enable the economy to achieve a new long-run equilibrium at E2?

  • A reduction in interest rates and increased government borrowing.

  • A reduction in the budget deficit and the rate of growth of the money supply.

  • Increased government expenditure on apprenticeships and transport infrastructure funded through borrowing.

  • Increased government expenditure on welfare funded through higher indirect taxes.

4
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1 mark

The table below shows different combinations of changes in the rate of interest and the government’s budget position. The economy has a negative output gap. All other things being equal, which one of the combinations of policies, A, B, C or D, is most likely to reduce the economy’s negative output gap? 

 

Rate of interest

Government’s budget position

A

Increase

Decrease in surplus

B

Decrease

Increase in surplus

C

Increase

Decrease in deficit

D

Decrease

Increase in deficit

    5
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    1 mark

    The marginal propensity to consume (MPC) in an economy is 0.5. If the MPC increases by 20% the new value of its multiplier will be

    • 2.0

    • 2.5

    • 5.0

    • 10.0

    6
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    At the start of the financial year, an economy’s national debt stands at £1000 billion. Over the course of the year, the government plans to spend an extra £100 billion and borrow an extra £40 billion.

    If the government achieves its spending and borrowing targets, by the end of the financial year the national debt will have increased by

    • 4%

    • 10%

    • 14%

    • 40%

    7
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    1 mark

    All other things being equal, an increase in the ratio of capital to labour resulting from an increase in investment is most likely to lead to a

    • decline in labour productivity

    • fall in the size of the labour force

    • negative demand-side shock to the economy

    • supply-side improvement

    8
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    1 mark

    Which one of the following is most likely to cause an increase in the structural budget deficit?

    • A fall in income tax receipts in the downturn of the economic cycle

    • A rise in government spending on unemployment-related benefits during a recession

    • A rise in healthcare expenditure and state pension provision due to an ageing population

    • A rise in spending on imports during an economic recovery

    9
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    1 mark

    The table below shows the marginal income tax rates in an economy for 2016.

    Table: Marginal income tax rates for every $1 of income

    Taxable Income

    Income tax rates 2016

    From $0 to $10 000

    0%

    From $10 001 to $30 000

    10%

    From $30 001 to $50 000

    30%

    $50 001 and above

    45%

    How much income tax would be payable by someone earning $40 000 in 2016?

    • $5 000

    • $5 500

    • $10 000

    • $12 000

    10
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    1 mark

    The national debt is the

    • annual budget deficit plus the external trade deficit

    • amount by which the budget deficit increases each year

    • annual difference between government spending and tax receipts

    • the cumulative stock of outstanding central government borrowing