Fiscal policy — Paper 1 · A Level Economics 9708

25 What is most likely to cause demand-pull inflation? A an increase in indirect taxes B an increase in interest rates C a reduction in direct taxes D a reduction in the money supply

1 marks

Answer: C

This question in 9708/11 May/June 2006

30 In an attempt to correct a balance of trade deficit the government of Indonesia has decided to employ expenditure-dampening methods. Which policy would best fit this description? A introducing quotas on imported goods B raising income tax rates C subsidising home-produced goods D taxing imported goods

1 marks

Answer: B

This question in 9708/11 May/June 2006

25 What is correct about the causes of inflation? A Cost-push inflation can be caused by a rising exchange rate. B Cost-push inflation can be caused by lower indirect taxes. C Demand-pull inflation can be caused by a rising exchange rate. D Demand-pull inflation can be caused by lower direct taxes.

1 marks

Answer: D

This question in 9708/11 Oct/Nov 2008

30 Which measure to correct a balance of payments current account deficit would be classified as an expenditure-dampening policy? A a reduction in interest rates B an increase in direct taxes C an introduction of foreign exchange controls D an upward revaluation of the currency

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2008

19 A government has been protecting its domestic car industry with a quota on imported cars. It then removes the quota and replaces it with a subsidy to domestic car producers. How will this change affect the price of cars and the level of consumer choice? price of cars level of choice A decrease decrease B decrease increase C increase decrease D increase increase

1 marks

Answer: B

This question in 9708/12 Oct/Nov 2009

30 When will a country’s balance of payments current account deficit be reduced? A when it raises its rate of income tax B when it reduces tariffs on its imports C when it revalues its currency D when it removes export subsidies

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2011

30 The currency of a country is fixed by the Central Bank at a certain value in terms of US dollars. If currency devaluation is not possible, which policy might be used to reduce a current account deficit on the balance of payments? A a decrease in interest rates B a decrease in tax rates C a decrease in tariffs on imports D a decrease in public expenditure

1 marks

Answer: D

This question in 9708/12 May/June 2012

30 What is an example of an expenditure-dampening policy? A an increase in income tax rates B an increase in the level of import tariffs C an upward revaluation of the exchange rate D the introduction of import quotas

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2012

26 What will be the probable effect of an increase in indirect taxes on demand-pull inflation and on cost-push inflation? demand-pull cost-push inflation inflation A increase increase B increase decrease C decrease decrease D decrease increase

1 marks

Answer: D

This question in 9708/12 May/June 2013

28 Which policy, adopted by a government with the intention of reducing the rate of inflation, might cause a greater deficit on the balance of payments? A higher foreign exchange rates for its currency B higher interest rates for domestic customers C higher subsidies to domestic producers D higher tax rates on consumer incomes

1 marks

Answer: A

This question in 9708/13 May/June 2013

30 A country has a long running current account deficit on the balance of payments. Its government was using an expenditure switching policy but decides to change to an expenditure reducing policy. What could have been the old policy and its new policy? old policy new policy A export subsidies quotas B income tax interest rate C quotas exchange rate control D tariffs income tax

1 marks

Answer: D

This question in 9708/11 Oct/Nov 2013

30 An economy has a high level of unemployment and a large balance of payments deficit on the current account. What would be a suitable policy for the government to adopt? A decrease government spending B devalue the currency C increase direct taxation D increase interest rates

1 marks

Answer: B

This question in 9708/12 Oct/Nov 2013

30 What is most likely to immediately reduce the deficit on the current account of a country’s balance of payments? A a cut in its interest rates B a rise in its income tax rates C cuts in subsidies to domestic industry D purchases of its currency by its government

1 marks

Answer: B

This question in 9708/13 Oct/Nov 2013

30 An economy has a high rate of inflation and a balance of payments deficit. Which policy change would help to reduce the balance of payments deficit without making inflation worse? A a devaluation of the currency B a reduction in government spending C the imposition of import quotas D the removal of import tariffs

1 marks

Answer: B

This question in 9708/13 Oct/Nov 2014

25 What will be the impact on demand-pull inflation and on cost-push inflation of an increase in indirect taxes? demand-pull cost-push inflation inflation A lower lower B lower raise C raise lower D raise raise

1 marks

Answer: B

This question in 9708/13 May/June 2015

30 China had US$155 billion current account surplus in 2012. Which combination of policies might the Chinese Government use to restore equilibrium? A Decrease income tax and raise the value of the Chinese currency, the Yuan. B Increase income tax and lower the value of the Chinese currency, the Yuan. C Increase subsidies to Chinese firms and reduce income tax. D Increase tariffs on imports and increase income tax.

1 marks

Answer: A

This question in 9708/13 May/June 2015

19 A government decided to reduce income tax and increase sales tax. The initial equilibrium point is shown by X on the aggregate demand (AD) and aggregate supply (AS) diagram. What would be the equilibrium point after these tax changes? AS1 AS C AS2 price X B level D A AD2 AD AD1 O real output

1 marks

Answer: C

This question in 9708/12 Feb/March 2016

28 What would be increased by an expansionary fiscal policy? A budget deficit B exchange rate C money supply D rate of direct taxation

1 marks

Answer: A

This question in 9708/12 Feb/March 2016

30 A country faces twin problems of deflation and a current account deficit on the balance of payments. It decides to run a budget deficit and to lower interest rates. Which effects are these measures likely to have on its twin problems? current deflation account deficit A improves uncertain B improves worsens C worsens uncertain D worsens worsens

1 marks

Answer: B

This question in 9708/11 May/June 2016

15 In 2009 the Chinese government faced decreased demand in export markets and wished to increase the sales of electrical goods made in China. Which policy would have achieved this aim? A increasing income tax B increasing the restrictions on the manufacture of electrical goods C removing a tariff on imported products D subsidising the sales of electrical goods in China’s poorer rural areas

1 marks

Answer: D

This question in 9708/13 May/June 2016

29 In an attempt to correct a balance of trade deficit, the government of Indonesia has decided to employ expenditure-dampening methods. Which policy would best fit this description? A introducing quotas on imported goods B raising income tax rates C subsidising home-produced goods D taxing imported goods

1 marks

Answer: B

This question in 9708/13 May/June 2016

18 A government’s budget deficit was reduced. What might have caused this? A a decrease in the revenue from vehicle tax B an increase in the rate of subsidy given to libraries C a purchase of two warships for the national defence D a sale of a publicly owned energy company to the private sector

1 marks

Answer: D

This question in 9708/11 Oct/Nov 2016

28 Which government policy will increase aggregate demand? A raising indirect taxation B reducing the budget surplus C removing domestic subsidies D removing import quotas

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2016

30 Country X is an open economy with a fixed exchange rate. Which combination of fiscal and monetary policies would be most effective in reversing a deflation? fiscal policy monetary policy A lower direct taxes devaluation B lower direct taxes revaluation C lower indirect taxes devaluation D lower indirect taxes revaluation

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2016

28 A newly-built public sector engineering training college received poor inspection reports. The government ceased to pay the college the money that it had usually received as its annual grant. Which types of government policy does this statement imply? A fiscal and monetary policies only B fiscal and supply-side policies only C fiscal, monetary and supply-side policies D monetary and supply-side policies only

1 marks

Answer: B

This question in 9708/12 Oct/Nov 2016

28 Which action might be part of an expansionary economic policy? A a lower budget deficit B a lower level of government spending C a lower money supply D a lower rate of interest

1 marks

Answer: D

This question in 9708/13 Oct/Nov 2016

30 Which combination of policies is most likely to reduce inflation when an economy is close to full employment? A increasing government spending on food subsidies and reducing import duty B increasing government spending on road building and increasing import duty C reducing government spending on training and increasing indirect taxes D reducing government spending on training and reducing the rate of interest

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2016

28 A government wants to operate a tighter monetary policy. What would it increase? A budget surplus B interest rate C money supply D rates of taxation

1 marks

Answer: B

This question in 9708/12 Feb/March 2017

30 The diagram shows four possible aggregate supply curves and an equilibrium point X. A government employs deflationary fiscal policy in order to reduce the rate of inflation in its economy. This shifts aggregate demand to AD2. With which AS curve would this policy be least effective? A B C price D level X AD1 AD2 O national income

1 marks

Answer: D

This question in 9708/12 Feb/March 2017

17 Planned government expenditure for the UK in the fiscal year 2016 is estimated at £760 billion. The top five areas of expenditure are given in the table. £ billion pensions 153 healthcare 138 welfare 111 education 89 defence 45 total top five 536 What is the total amount spent on transfer payments shown in the table? A £89 billion B £111 billion C £264 billion D £536 billion

1 marks

Answer: C

This question in 9708/11 May/June 2017

28 The diagram shows a government’s revenue and expenditure for three years. revenue 2008 expenditure revenue 2009 expenditure revenue 2010 expenditure 0 1 2 3 4 $m What can be concluded from the diagram? A A budget deficit was replaced by a budget surplus. B A government borrowing requirement emerged. C The economy moved from a recession into a boom period. D The yield from taxation continuously increased.

1 marks

Answer: B

This question in 9708/11 May/June 2017

28 The government of a country plans to raise income tax rates. The initial equilibrium for the country is represented by point X on the diagram. Which new equilibrium point would an economist predict as the result? price AS1 level A AS2 X B D AD3 C AD1 AD2 O real national income

1 marks

Answer: D

This question in 9708/12 May/June 2017

30 An economy is currently operating close to its full employment level of national income. Which combination of macro-economic policies would be most likely to have net deflationary effects? A a 10% cut in the standard rate of income tax and a 5% devaluation of the currency B a 10% cut in the standard rate of income tax and a 5% revaluation of the currency C a 10% rise in the standard rate of income tax and a 5% devaluation of the currency D a 10% rise in the standard rate of income tax and a 5% revaluation of the currency

1 marks

Answer: D

This question in 9708/12 May/June 2017

17 Which government transaction is a transfer payment? A a fee paid for a service supplied by government B a payment to a private firm for goods supplied to the government C a pension paid to a former government employee D a salary payment to a government tax official

1 marks

Answer: C

This question in 9708/13 May/June 2017

28 What is a deflationary fiscal measure? A reducing interest rates B reducing the money supply C increasing taxes D increasing government expenditure

1 marks

Answer: C

This question in 9708/13 May/June 2017

28 The government of a country plans to cut income tax rates. The initial equilibrium for the country is represented by point X on the diagram. Which new equilibrium point would an economist predict as the result? AS2 price A AS1 level B D X C AD3 AD1 AD2 O real national income

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2017

29 If an economy has a floating exchange rate, which policy could have an expansionary effect on national income with the smallest reduction of a current account surplus on the balance of payments? A a reduction in income tax rates B a reduction in interest rates C government subsidies to individuals wanting loans for house purchases D increased government spending on transport infrastructure

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2017

30 Which combination of fiscal and monetary policies is most likely to be effective in the short run for tackling deflation in a closed economy? fiscal policy monetary policy A increasing the budget deficit reducing the interest rate B increasing the budget deficit reducing the money supply C reducing the budget deficit reducing the interest rate D reducing the budget deficit reducing the money supply

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2017

29 When will a country’s balance of payments current account deficit be reduced? A when it lowers tariffs on its imports B when it raises its rate of income tax C when it removes export subsidies D when it revalues its currency

1 marks

Answer: B

This question in 9708/12 Oct/Nov 2017

30 The diagram shows four possible aggregate supply curves and an equilibrium point X. A government employs deflationary fiscal policy in order to reduce the rate of inflation in its economy. This shifts aggregate demand to AD2. With which AS curve would this policy be most effective? A B C price D level X AD1 AD2 O national income

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2017

28 All other things being equal, what will be the likely effects on the US budget deficit and the supply of US government bonds if the US government increases its expenditure? supply of US US budget deficit government bonds A decrease decrease B decrease increase C increase decrease D increase increase

1 marks

Answer: D

This question in 9708/13 Oct/Nov 2017

20 In the diagram an economy is initially in equilibrium at point X. The government increases spending on education. This coincides with an increase in wage rate inflation. Which point shows the most likely short-run equilibrium of the economy? SRAS2 C SRAS price level D B SRAS1 A X AD1 AD AD2 O real output

1 marks

Answer: C

This question in 9708/12 Feb/March 2018

28 Which action is classified as a fiscal policy measure? A fixing a currency to another country’s currency B managing changes in the level of government debt C providing guidance to industry and the public D tightening reserve asset requirements for financial institutions

1 marks

Answer: B

This question in 9708/12 Feb/March 2018

30 Which type of policy would have the most immediate effect in dealing with a deflationary economic downturn? A increasing the government’s budget surplus B increasing liquidity by assisting banks to lend more C investing in projects to improve transport networks D switching the burden of taxation from earning to spending

1 marks

Answer: B

This question in 9708/12 Feb/March 2018

28 A government decides to borrow from the general public in order to finance its extra spending on apprenticeship training schemes. Which types of macroeconomic policy are being used? fiscal monetary supply side A J x J key B v x x / = used Cc x v v X = not used D x Jv x

1 marks

Answer: A

This question in 9708/11 May/June 2018

30 In an economy, prices are rising. The government wishes to limit further increases in prices. Which policies would it be likely to use? A decrease goods and services (sales) tax and put a quota on cheap imports B decrease income tax and decrease interest rates C increase interest rates and decrease government spending D withdraw industry subsidies and impose a minimum wage

1 marks

Answer: C

This question in 9708/12 May/June 2018

28 A government increases the basic rate of income tax to finance additional spending on apprenticeships and training. Which types of macroeconomic policy are being used? fiscal policy 0 OO WwW PY ~*~ QS 4K OK monetary policy Ke 4 supply side policy << x key J¥ = used X = not used

1 marks

Answer: C

This question in 9708/13 May/June 2018

30 Bulgaria’s Consumer Price Index changed at an annual rate of –2.2% in April 2016. In May the annual rate of change was –1.4%. What fiscal policy and monetary policy would be most appropriate in the short run to restore price stability? fiscal policy monetary policy A decrease government spending decrease interest rates B decrease taxes increase rate of interest C increase government spending decrease interest rates D increase taxes increase rate of interest

1 marks

Answer: C

This question in 9708/13 May/June 2018

28 In 2012, the Indian Government stated that it aimed to reduce its budget deficit to 5.1% of GDP. Which policy is most likely to help this aim? A a decrease in import tariffs B a decrease in the rate of interest C an increase in the sale of state-owned assets D an increase in government pension payments

1 marks

Answer: C

This question in 9708/11 Oct/Nov 2018

30 A government reduced the tax on company profits from 28% to 20%. Which statement best describes this policy? A It is both a contractionary fiscal policy and a supply-side policy. B It is both an expansionary fiscal policy and a supply-side policy. C It is both an expansionary fiscal policy and an expansionary monetary policy. D It is both an expansionary monetary policy and a supply-side policy.

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2018

19 The diagram shows a shift in the aggregate demand curve, from AD1 to AD2. price level AD2 AD1 O real output What might have caused this shift? A a fall in the budget surplus B a fall in the trade surplus C a rise in imports D a rise in the interest rate

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2018

30 Which policy mix is most likely to be effective in the short run for reducing inflation in a closed economy? fiscal policy monetary policy A decreasing the budget surplus increasing the interest rate B decreasing the budget surplus increasing the money supply C increasing the budget surplus increasing the interest rate D increasing the budget surplus increasing the money supply

1 marks

Answer: C

This question in 9708/12 Oct/Nov 2018

17 What describes a regressive tax? A low income earners pay a higher proportion of their income in tax than high income earners B marginal tax rates exceed average tax rates C the cost of collecting the tax exceeds the revenue raised D the marginal rate of tax is higher for high income earners than for low income earners

1 marks

Answer: A

This question in 9708/12 Feb/March 2019

28 Which action might be part of an expansionary economic policy? A reducing the budget deficit B reducing the level of government spending C reducing the money supply D reducing the rate of interest

1 marks

Answer: D

This question in 9708/12 Feb/March 2019

14 To improve its financial position a government decided to reduce expenditure on investment in the public sector. Despite this, there was not a fall in economic growth. What was the most likely effect of the government’s action? A An original budget deficit was reduced. B An original budget surplus was reduced. C Consumer expenditure decreased. D Public sector productivity decreased.

1 marks

Answer: A

This question in 9708/11 May/June 2019

28 What is most likely to be increased by a policy of increased direct taxes and lower government spending? A the balance of payments deficit B the budget deficit C the rate of inflation D the level of unemployment

1 marks

Answer: D

This question in 9708/11 May/June 2019

29 To encourage people to work, a government increases the minimum income level at which people start to pay income tax. Which types of macroeconomic policy are being followed here? fiscal monetary supply side policy policy policy A J x J B x J J Cc J J J D J J x

1 marks

Answer: A

This question in 9708/11 May/June 2019

19 A country has a fixed exchange rate. Which combination of problems would be most likely to cause the country’s government to reduce taxation and lower interest rates? A demand inflation and a balance of payments current account deficit B demand inflation and a low level of investments C high unemployment and a balance of payments current account deficit D high unemployment and a low level of investment

1 marks

Answer: D

This question in 9708/12 May/June 2019

16 Governments are trying to reduce the burden of transfer payments in economies with an ageing population. Which policy would help to achieve this aim? A introducing financial support for university students B linking pension increases to the consumer price index during inflation C raising the retirement age D reducing state pensions to finance an equal rise in unemployment benefit

1 marks

Answer: C

This question in 9708/13 May/June 2019

27 An increase in what will shift the aggregate demand curve in an economy to the right? A budget deficit B consumer savings C general price level D interest rate

1 marks

Answer: A

This question in 9708/13 May/June 2019

28 An economy has a balance of payments surplus, which it wishes to eliminate. In order to achieve this objective, which combination of polices would be most appropriate? A a depreciation of the currency and an increase in government spending B an appreciation of the currency and a cut in interest rates C an increase in the money supply and a pay freeze D increases in both direct and indirect taxation

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2019

24 In February 2016 the Organisation for Economic Cooperation and Development (OECD) urged major economies such as the US and Japan to increase government spending. How would this affect the aggregate demand (AD) curve in these countries? A a move left along the AD curve B a move right along the AD curve C a move to the left of the AD curve D a move to the right of the AD curve

1 marks

Answer: D

This question in 9708/12 Oct/Nov 2019

30 What would be increased by an expansionary fiscal policy? A budget deficit B exchange rate C money supply D rate of direct taxation

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2019

30 A government adopts a more expansionary fiscal policy and a more deflationary monetary policy. Which combination of changes in policy instruments is consistent with this? government taxation interest rate expenditure A decrease decrease decrease B decrease increase decrease C increase decrease increase D increase increase increase

1 marks

Answer: C

This question in 9708/13 Oct/Nov 2019

29 What is an example of fiscal policy aimed at increasing aggregate demand in an economy? A increasing expenditure by firms on skills training programmes for unskilled workers B increasing the commercial banks’ lending ability C reducing the rate of income tax for all income earners D reducing the rate of interest on loans to manufacturing companies

1 marks

Answer: C

This question in 9708/12 Feb/March 2020

21 Which combination of changes is most likely to lead to an increase in the aggregate price level and the level of real output? income tax rate net exports A fall decrease B fall increase C rise decrease D rise increase

1 marks

Answer: B

This question in 9708/11 May/June 2020

29 In 2018 the United States (US) government reduced direct taxes on consumers and businesses. What are likely to be the effects of these changes on consumption, investment and national output? consumption investment national output A decrease decrease decrease B decrease increase increase C increase decrease decrease D increase increase increase

1 marks

Answer: D

This question in 9708/11 May/June 2020

24 The diagram shows an economy at full employment equilibrium. LRAS general price level P AD O YFE real output Which short-run measures should the government take to maintain the economy’s current equilibrium if there is an unexpected balance of trade surplus? A higher government spending on education financed by an equal rise in direct taxation B higher direct taxation with government spending unchanged to create a budget surplus C higher spending on infrastructure financed by a budget deficit D lower interest rates to promote investment spending in the private sector

1 marks

Answer: B

This question in 9708/12 May/June 2020

28 Which combination correctly classifies an expansionary fiscal measure and its impact on a budget deficit? fiscal policy budget deficit A increased quantitative easing unchanged B increased welfare spending increased C lower income tax reduced D lower interest rates unchanged

1 marks

Answer: B

This question in 9708/12 May/June 2020

28 What would be a positive effect on the growth of an economy in the short run, if the government reduced a direct tax on individual earnings? A food prices would increase due to shortages B imports of luxury cars would increase to satisfy a change in demand C savings would increase due to additional disposable income D the consumption of domestically produced goods would increase

1 marks

Answer: D

This question in 9708/13 May/June 2020

29 Which combination of fiscal and monetary policies is most likely to be effective in the short run for tackling deflation in a closed economy? fiscal policy monetary policy A decreasing the budget deficit decreasing the interest rate B decreasing the budget deficit decreasing the money supply C increasing the budget deficit decreasing the interest rate D increasing the budget deficit decreasing the money supply

1 marks

Answer: C

This question in 9708/13 May/June 2020

28 Greece had an unemployment rate of over 20% in 2016. Which combination of policies would be best for the Greek government to try to reduce unemployment? government profit monetary policy expenditure tax A decrease interest rates increase decrease B decrease interest rates decrease increase C increase interest rates increase increase D increase interest rates decrease decrease

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2020

29 The diagram shows the relationship between the income tax rate and tax revenue. tax X revenue W O Z Y income tax rate (%) Which statement is correct? A A tax rate cut from Y to Z will cause tax revenue to decrease. B At tax rates below Z a tax rate cut will cause tax revenue to increase. C The greater the rate of tax increases beyond Z, the smaller will be the tax revenue generated. D Tax revenue will always increase as the rate of income tax increases.

1 marks

Answer: C

This question in 9708/11 Oct/Nov 2020

25 The diagram shows aggregate demand curves AD1 and AD2 and an aggregate supply curve AS1. AS1 price level AD2 AD1 O real output What could cause the shift in the aggregate demand curve from AD1 to AD2? A a rise in the interest rates B a rise in output per worker C a rise in the budget deficit D a rise in the value of the exchange rate

1 marks

Answer: B

This question in 9708/12 Oct/Nov 2020

28 A government uses monetary policy and fiscal policy to solve a problem of deflation. Which policy combination is likely to be the most successful? monetary policy fiscal policy A increasing interest rates contractionary B increasing interest rates expansionary C reducing interest rates contractionary D reducing interest rates expansionary

1 marks

Answer: D

This question in 9708/12 Oct/Nov 2020

29 A government reduces its expenditure on workplace training, increases the level of indirect taxes, and reduces the rate of interest it pays on government debt. How would these government macroeconomic policies be categorised? supply-side fiscal monetary A con con exp key B exp con con con = contractionary C con exp exp exp = expansionary D exp exp con

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2020

17 Which tax is levied on a stock of wealth rather than a flow of income? A company profits tax B goods and services (expenditure) tax C individual direct tax D personal asset tax

1 marks

Answer: D

This question in 9708/13 Oct/Nov 2020

28 A government reduces the benefits that it pays to unemployed workers to increase the incentive to work. Which types of macroeconomic policies are being used? fiscal monetary supply-side policy policy policy v 0 OW > x « < x \ <x x v v x

1 marks

Answer: C

This question in 9708/13 Oct/Nov 2020

30 Country X is an open economy with a fixed exchange rate. Which combination of fiscal and monetary policies would be most effective in solving deflation? fiscal policy monetary policy A lower direct taxes devaluation B lower direct taxes revaluation C lower indirect taxes devaluation D lower indirect taxes revaluation

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2020

28 The table shows the consumer prices index (CPI) for an economy expressed as an index number. year CPI 2016 100 2017 103 2018 101 2019 97 Which action is the government most likely to take to achieve price stability? A appreciate the exchange rate B decrease the budget deficit C increase the money supply D increase the rate of interest

1 marks

Answer: C

This question in 9708/12 Feb/March 2021

30 A government spends money building more schools. How might this be classified? fiscal supply-side monetary policy policy policy A J J x B J J Jv Cc J x x D x Jv x

1 marks

Answer: A

This question in 9708/12 Feb/March 2021

28 Why are higher interest rates together with increased taxation on expenditure likely to cause domestic deflation? A because the contractionary monetary policy will over-ride the expansionary fiscal policy B because the monetary and fiscal policies involved will reinforce each other C because the expansionary monetary policy will over-ride the contractionary fiscal policy D because the monetary and fiscal policies involved will cancel each other out

1 marks

Answer: B

This question in 9708/12 May/June 2021

29 Which policy aimed at correcting a balance of trade deficit is an expenditure-reducing policy? A depreciation of the currency B increased direct taxation C tax incentives for exporters D the imposition of protectionist tariffs

1 marks

Answer: B

This question in 9708/12 May/June 2021

30 Which policy will not cause a reduction in the rate of inflation? A increasing income tax B reducing government spending C reducing interest rates D removing subsidies

1 marks

Answer: C

This question in 9708/12 May/June 2021

27 Which type of policy would have the most immediate effect in dealing with a deflationary economic downturn? A increasing the government’s budget surplus B increasing borrowing by assisting banks to lend more C investing in long-term projects to improve transport networks D switching the burden of taxation from earning to spending

1 marks

Answer: B

This question in 9708/13 May/June 2021

29 Deflation is associated with persistent falling price levels. Which government policy would be most effective to prevent deflation? A imposing maximum price levels on basic foodstuffs B improving consumer confidence by reducing sales taxes C increasing income tax rates and increasing government borrowing D removing economic uncertainty and encouraging business investment

1 marks

Answer: D

This question in 9708/13 May/June 2021

28 A government reduces the rate of direct income tax and devalues its currency. Which row describes the policy effects of these decisions? fiscal policy monetary policy supply-side policy A contractionary expansionary contractionary B expansionary contractionary expansionary C expansionary expansionary contractionary D expansionary expansionary expansionary

1 marks

Answer: D

This question in 9708/11 Oct/Nov 2021

30 The government wishes to increase aggregate demand. Which actions would be most likely to succeed? A a reduction in income tax and an increase in interest rates B a reduction in income tax and an increase in production subsidies C an increase in corporate tax and an increase in government spending D an increase in value added tax (sales tax) and a reduction in government spending

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2021

15 What is a distinguishing feature of a progressive income tax? A High earners pay a higher proportion of their income in tax than low earners. B High earners pay a lower proportion of their income in tax than low earners. C High earners pay the same proportion of their income in tax as low earners. D Low earners pay more tax than high earners.

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2021

24 There is an increase in indirect taxes. What will be the impact on demand-pull inflation and on cost-push inflation? demand-pull cost-push inflation inflation A fall fall B fall rise C rise fall D rise rise

1 marks

Answer: B

This question in 9708/12 Oct/Nov 2021

28 In 2012, the Indian Government stated that it aimed to reduce its budget deficit to 5.1% of GDP. Which policy is most likely to help this aim in the short run? A a decrease in import tariffs B a decrease in the rate of interest C an increase in the sale of state-owned assets D an increase in government pension payments

1 marks

Answer: C

This question in 9708/12 Oct/Nov 2021

30 Country X is an open economy with a floating exchange rate. It changes to a fixed exchange rate. Which combination of policy changes would be most effective in reducing inflation? fiscal policy new fixed exchange rate A higher direct taxes above purchasing power parity B higher direct taxes below purchasing power parity C higher indirect taxes above purchasing power parity D higher indirect taxes below purchasing power parity

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2021

14 To improve its financial position, a government decided to reduce expenditure on investment in the public sector. There was not a fall in economic growth. What was the most likely effect of the government’s action? A An original budget deficit was reduced. B An original budget surplus was reduced. C Consumer expenditure decreased. D Public sector productivity decreased.

1 marks

Answer: A

This question in 9708/12 Feb/March 2022

18 What is an example of a transfer payment? A government spending on hospitals B government spending on motorways C minimum wage D welfare benefits

1 marks

Answer: D

This question in 9708/11 May/June 2022

28 What could be described as an expansionary fiscal policy? A a decrease in the budget deficit B a decrease in the budget surplus C a decrease in the exchange rate D a decrease in the money supply

1 marks

Answer: B

This question in 9708/11 May/June 2022

29 What is an example of contractionary fiscal policy? A an increase in the budget deficit B an increase in the budget surplus C an increase in the interest rate D an increase in the money supply

1 marks

Answer: B

This question in 9708/12 May/June 2022

28 Which measure to correct a balance of payments current account deficit would be classified as an expenditure-reducing policy? A a reduction in interest rates B a revaluation of the currency C an increase in direct taxes D an introduction of foreign exchange controls

1 marks

Answer: C

This question in 9708/13 May/June 2022

30 A country is suffering from severe deflation. What is most likely to prevent the deflation from worsening? A increasing income tax to help reduce the government’s budget deficit B increasing interest rates to encourage more saving C increasing transfer payments to reduce inequality of income D revaluing the currency to bring in more revenue from exports

1 marks

Answer: C

This question in 9708/13 May/June 2022

29 What would be increased by an expansionary fiscal policy? A budget deficit B exchange rate C money supply D rate of direct taxation

1 marks

Answer: A

This question in 9708/14 May/June 2022

30 A government decides to borrow from the general public in order to finance its extra spending on apprenticeship training schemes. Which types of macroeconomic policy are being used? fiscal monetary supply side v x v 0 0O WwW D> v x x x v v x v x

1 marks

Answer: A

This question in 9708/14 May/June 2022

18 A government announces its intention to reduce the level of transfer payments in the economy. Which statement made by the government is consistent with this intention? A There need to be more incentives for unemployed workers to seek jobs. B State pensions need to be increased. C The level of income tax needs to be raised. D The level of government expenditure needs to be increased.

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2022

28 To encourage people to work, a government increases the minimum income level at which people start to pay income tax. Which types of macroeconomic policy are being followed? fiscal monetary supply side policy policy policy A J x J B x J J Cc J J J D J J x

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2022

29 Which type of economic policy is likely to be considered the most effective by a government that has greater income equality as its primary aim? A fiscal policy B international trade policy C monetary policy D supply side policy

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2022

30 The diagram shows four possible aggregate supply curves and an equilibrium point X. A government employs deflationary fiscal policy in order to reduce the rate of inflation in its economy. This shifts aggregate demand to AD2. With which AS curve would this policy be most effective? A B C price D level X AD1 AD2 O national income

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2022

29 A country is currently experiencing deflation. It has a large national debt that is greater than its annual real income. Which combination of policies is most likely to increase the general price level without adding to the national debt? fiscal policy monetary policy A decrease the budget deficit decrease the money supply B decrease the budget deficit increase the money supply C increase the budget deficit decrease the money supply D increase the budget deficit increase the money supply

1 marks

Answer: B

This question in 9708/13 Oct/Nov 2022

28 What is least likely to rise as a result of the use of expansionary fiscal policy? A aggregate demand B budget surplus C nominal income D inflation

1 marks

Answer: B

This question in 9708/12 Feb/March 2023

19 The diagram shows the aggregate demand (AD) and aggregate supply (AS) for an economy. AS2 general price AS1 level AD O real output Which changes in subsidies and indirect taxes would have caused the change from AS1 to AS2? A higher subsidies and higher indirect taxes B higher subsidies and lower indirect taxes C lower subsidies and higher indirect taxes D lower subsidies and lower indirect taxes

1 marks

Answer: C

This question in 9708/11 May/June 2023

28 What is the equivalent of a country’s national debt? A the accumulated borrowing of the government B the difference between government spending and taxation C the interest paid by the government on all the money it owes D the total money owed by all households in the country

1 marks

Answer: A

This question in 9708/11 May/June 2023

30 Which approach would a government be most likely to use to eliminate deflation? A an increase in direct taxes B an increase in interest rates C a reduction in indirect taxes D a reduction in its budget surplus

1 marks

Answer: D

This question in 9708/13 May/June 2023

28 The government of a country plans to raise income tax rates. The initial equilibrium for the country is represented by point X on the diagram. Which new equilibrium point would an economist predict as the result? price AS1 level A AS2 X B D AD3 C AD1 AD2 O real national income

1 marks

Answer: D

This question in 9708/11 Oct/Nov 2023

24 A government increases the rate of income tax. What is the effect, in the short run, on the aggregate demand curve or the aggregate supply curve? A The aggregate demand curve shifts left. B The aggregate demand curve shifts right. C The aggregate supply curve shifts left. D The aggregate supply curve shifts right.

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2023

29 A government wants to reduce inflation. It has decided to cut government spending by $1bn. The diagram shows different starting positions for the country’s aggregate demand (AD) curve. AS price level AD4 AD3 AD2 AD1 O real GDP Which starting position for the aggregate demand curve would make this policy least effective? A AD1 B AD2 C AD3 D AD4

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2023

29 A government aims to reduce unemployment through expansionary fiscal policy and borrows more from the commercial banks, increasing its borrowing requirement. What will be the result? A a decrease in the budget deficit B a decrease in the national debt C an increase in the balance of payments deficit on the current account D an increase in the interest rates

1 marks

Answer: D

This question in 9708/13 Oct/Nov 2023

20 A government has a balanced budget. It decides to increase its spending by 10%. Which increase in government revenue would produce a budget surplus? A –10% B 0% C +10% D +20%

1 marks

Answer: D

This question in 9708/12 Feb/March 2024

22 The diagram shows aggregate demand (AD) curves for an economy. price level AD1 AD2 O real output Which combination is most likely to have caused the shift from AD1 to AD2? income tax sales tax A decrease decrease B decrease increase C increase decrease D increase increase

1 marks

Answer: D

This question in 9708/12 Feb/March 2024

21 Which statement about government budget surpluses and deficits is the most accurate? A A surplus implies that the balance of payments is in surplus. B A surplus implies that the government is spending too much money. C A deficit implies that the economy is in decline. D A deficit implies that the national debt is increasing.

1 marks

Answer: D

This question in 9708/11 May/June 2024

22 What is most likely to decrease if a government uses expansionary fiscal policy? A a balance of payments deficit B cyclical unemployment C the level of wages D the rate of inflation

1 marks

Answer: B

This question in 9708/11 May/June 2024

23 Sweden had a change in its Consumer Prices Index (CPI) of –0.6%. Which combination of policies might its government use to restore price stability? A increase interest rates and increase indirect taxes B increase interest rates and reduce government spending C reduce government spending and increase income tax D reduce interest rates and increase government spending

1 marks

Answer: D

This question in 9708/11 May/June 2024

15 Which government policy will increase aggregate demand? A raising indirect taxation B reducing the budget surplus C removing domestic subsidies D removing import quotas

1 marks

Answer: B

This question in 9708/12 May/June 2024

20 Which combination of fiscal and monetary policies is most likely to be effective in the short run to prevent deflation in a closed economy? fiscal policy monetary policy A decreasing the budget deficit decreasing the interest rate B decreasing the budget deficit decreasing the money supply C increasing the budget deficit decreasing the interest rate D increasing the budget deficit decreasing the money supply

1 marks

Answer: C

This question in 9708/13 May/June 2024

21 Which macroeconomic objective is most likely to be achieved by increasing income tax? A depreciation of the exchange rate B economic growth C low unemployment D price stability

1 marks

Answer: D

This question in 9708/13 May/June 2024

17 What is most likely to increase a country’s circular flow of income? A Its budget deficit increases. B Its imports increase. C Its interest rates increase. D Its exchange rate increases.

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2024

20 A government makes two changes to income tax. 1 The individual tax-free income allowance is increased. 2 The marginal rate of income tax is decreased. How will these changes affect aggregate demand and aggregate supply in the economy? aggregate aggregate demand supply A decrease increase B decrease unchanged C increase increase D increase unchanged

1 marks

Answer: C

This question in 9708/11 Oct/Nov 2024

21 Which supply-side policy is most likely to decrease a government’s budget deficit? A cutting tax rates on company profits B cutting unemployment benefits C raising spending on education and training D raising tax-free income tax allowances

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2024

22 Which combination of fiscal and monetary policies would certainly be expansionary? government money taxes spending supply A decrease decrease decrease B decrease increase decrease C increase decrease increase D increase increase increase

1 marks

Answer: C

This question in 9708/11 Oct/Nov 2024

22 An economy is in equilibrium at point E on the diagram. The government reduces its expenditure on defence. Which point on the diagram shows the new equilibrium? AS1 AS2 price level P1 E A B P2 C P3 D AD1 P4 AD2 AD3 O Y1 Y2 Y3 national income

1 marks

Answer: A

This question in 9708/12 Oct/Nov 2024

21 Supply-side policy often has fiscal consequences. Which statement is not correct? A Increased government spending supporting technical progress has beneficial long-term supply-side effects but may have short-term inflationary consequences. B Increased government expenditure on training increases a country’s long-run aggregate supply (LRAS) and also has an expansionary effect on aggregate demand (AD). C Reduced government infrastructure spending reduces an economy’s LRAS and has a short-term expansionary effect on AD. D Reduced rates of tax on higher incomes increases an economy’s LRAS and has an expansionary effect on AD.

1 marks

Answer: C

This question in 9708/13 Oct/Nov 2024

22 Changes in fiscal policy can affect the distribution of income and wealth. Which combination of fiscal policy would most likely be regressive? A a fall in the lowest level of income when income tax has to be paid and a fall in the rate of inheritance tax B a fall in the charge made for visits to a doctor and a rise in the level of unemployment benefit C a rise in the rate of income tax charged at higher levels of income and a rise in the standard rate of corporation tax D a rise in the standard rate of income tax and a fall in the standard rate of goods and services tax

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2024

23 What does it mean when a government has a budget surplus? A Government revenue exceeds expenditure. B Imports exceed exports. C The government has an expansionary fiscal policy. D The national debt is increasing.

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2024

22 Which combination of fiscal policy measures will reduce both the inflation rate and income inequality? subsidies on food and direct taxes indirect taxes public transport A decrease decrease increase B decrease increase increase C increase decrease increase D increase increase decrease

1 marks

Answer: C

This question in 9708/12 Feb/March 2025

25 What defines a progressive tax? A All taxpayers pay the same proportion of income in taxes. B Low-income earners pay a lower proportion of income in taxes than high-income earners. C Low-income earners pay less in taxes than high-income earners. D Low-income earners pay more in taxes than high-income earners.

1 marks

Answer: B

This question in 9708/12 Feb/March 2025

22 A government decides to raise most of its revenues from indirect taxes. What would increase the effectiveness of this policy? A an increasing trend towards bartering of goods B increasing interest rates on household savings C increasing occurrence of informal markets in the economy D placing taxes on goods and services which have a price-inelastic demand

1 marks

Answer: D

This question in 9708/11 May/June 2025

25 The table shows the amount of tax paid on three different levels of income. Which combination shows a proportional income tax system? tax paid on annual tax paid on annual tax paid on annual income of $10000 income of $20000 income of $40000 A 1000 1000 1000 B 1000 1500 2000 C 1000 2000 4000 D 1000 2500 8000

1 marks

Answer: C

This question in 9708/11 May/June 2025

22 A government increases direct taxation to reduce its budget deficit. How is this likely to affect the government’s ability to achieve its macroeconomic objectives? economic growth low inflation low unemployment A less likely less likely less likely B more likely less likely more likely C less likely more likely less likely D more likely more likely less likely An income tax has a tax-free allowance of $10 000 and a single rate of 25%.

1 marks

Answer: C

This question in 9708/12 May/June 2025

25 The diagram shows aggregate demand (AD) and aggregate supply (AS) curves. The initial equilibrium is at X. A government decides to invest in an increase in infrastructure. What will be the short-term effect of this policy on the equilibrium? AD AD1 price level A AS1 B AS X C AS2 D O real GDP

1 marks

Answer: B

This question in 9708/12 May/June 2025

22 Which action is classified as a fiscal policy measure? A fixing a currency to another country’s currency B tightening credit regulations on banks C providing guidance to industry and the public D managing changes in the level of government debt

1 marks

Answer: D

This question in 9708/13 May/June 2025

23 The table shows government spending and revenue over a three-year period. government government year spending revenue ($bn) ($bn) 1 90 100 2 110 110 3 130 115 What can be concluded from the data? A A budget surplus becomes a budget deficit in year 3. B National debt is likely to be falling by the end of year 3. C The current account balance is in equilibrium in year 2. D The economy is at full employment equilibrium in year 2.

1 marks

Answer: A

This question in 9708/13 May/June 2025

18 A government spends money to provide an education for students. Which type of spending is capital expenditure? A computers for classrooms B grants for university students C rent for school buildings D wages for teachers

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2025

19 What is an example of fiscal policy aimed at increasing aggregate demand in an economy? A increasing expenditure by firms on skills training programmes for unskilled workers B increasing the commercial banks’ lending ability C reducing the rate of income tax for all income earners D reducing the rate of interest on loans to manufacturing companies

1 marks

Answer: C

This question in 9708/11 Oct/Nov 2025

24 A government reduces its expenditure on workplace training, increases the level of indirect taxes and reduces the rate of interest it pays on government debt. How would these government macroeconomic policies be categorised? supply-side fiscal monetary A con con exp key B exp con con con = contractionary C con exp exp exp = expansionary D exp exp con

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2025

25 The government of a country reduces its budget deficit by cutting government spending. At the same time, the central bank raises the interest rates. When might this combination of policies be used? inflation rate unemployment rate A high high B high low C low high D low low

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2025

30 A country has a current account deficit on its balance of payments. The government also has a budget deficit. Which measure to reduce the current account deficit will increase the budget deficit? A depreciating the exchange rate B introducing quotas on imports C raising tariffs on imports D subsidising exports

1 marks

Answer: D

This question in 9708/11 Oct/Nov 2025

18 A government reduces the benefits that it pays to unemployed workers to increase the incentive to work. Which types of macroeconomic policies are being used? fiscal monetary supply-side policy policy policy A ✓ ✗ ✗ B ✓ ✓ ✗ C ✓ ✗ ✓ D ✗ ✗ ✓

1 marks

Answer: C

This question in 9708/12 Oct/Nov 2025

29 What is the effect of a cut in a country‘s income tax rates on its exports and imports? exports imports A fall fall B fall unchanged C unchanged fall D unchanged rise

1 marks

Answer: D

This question in 9708/12 Oct/Nov 2025

23 A government increases the basic rate of income tax to finance additional spending on apprenticeships and training. Which types of macroeconomic policy are being used? monetary supply side fiscal policy policy policy A ✓ ✓ ✓ key B ✓ ✓ ✗ ✓= used C ✓ ✗ ✓ ✗= not used D ✗ ✓ ✓

1 marks

Answer: C

This question in 9708/13 Oct/Nov 2025

24 The diagram shows an economy in equilibrium with a real output of Y and a price level of P. The government aims to raise real output from Y to full employment (YFE) without increasing the price level in the long run. LRAS price level P AD O Y YFE real output Which fiscal policy change is most likely to achieve this aim? A decreasing the rate of income tax B decreasing spending on education C increasing the level of sales tax D increasing welfare benefit payments

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2025

25 A government reduced the tax on company profits from 28% to 20%. Which statement best describes this policy? A It is both a contractionary fiscal policy and a supply-side policy. B It is both an expansionary fiscal policy and a supply-side policy. C It is both an expansionary fiscal policy and an expansionary monetary policy. D It is both an expansionary monetary policy and a supply-side policy.

1 marks

Answer: B

This question in 9708/13 Oct/Nov 2025

26 Which policy is most likely to have a contractionary effect on national income? A a reduction in income tax rates B a reduction in interest rates C an appreciation in the exchange rate D an increase in government spending on transport infrastructure

1 marks

Answer: C

This question in 9708/13 Oct/Nov 2025