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S6 Economics: Fiscal Policy Practice Paper 1
S6 Economics: Fiscal Policy Practice Paper 1
Ten items on surpluses and deficits, progressive tax, the spending and tax multipliers and automatic stabilisers, each with an answer and a one-line note.
Quick answer Revenue of 80 billion against spending of 75 billion leaves a 5 billion surplus. With a marginal propensity to consume of 0.8 the spending multiplier is five and the tax multiplier is minus four, and spending of 120 billion is 40 per cent of a 300 billion GDP.
01 Paper details (check answers afterwards)
| Item | Detail |
|---|---|
| Questions | 10 questions |
| Suggested time | 25 minutes |
| Difficulty mix | Foundation 4 · Intermediate 3 · Challenge 2 · Error redo 1 |
| Chapter | Chapter: S6 Economics: Fiscal Policy – Tutor Lesson Plan |
| Level | S6 |
02 Questions (10 items)
- FoundationGovernment revenue is 80 billion dollars and spending is 75 billion dollars. What is the budget surplus?
- FoundationGovernment revenue is 82 billion dollars and spending is 90 billion dollars. What is the budget deficit?
- FoundationThe first 30,000 dollars of income is tax free and the rest is taxed at 15 per cent. What is the tax on 50,000 dollars?
- FoundationWhich two measures normally make up an expansionary fiscal policy?
- IntermediateThe marginal propensity to consume is 0.8 and government spending rises by 10 billion dollars. By how much can GDP rise at most?
- IntermediateWith a marginal propensity to consume of 0.8, the government cuts tax by 5 billion dollars. By how much can GDP rise at most?
- IntermediateDuring a recession, how do progressive taxes and unemployment benefits act as automatic stabilisers?
- ChallengeGovernment spending is 120 billion dollars and GDP is 300 billion dollars. What share of GDP is government spending?
- ChallengeThe deficit is 5 per cent of a 200 billion dollar GDP. If GDP grows 3 per cent while the deficit is unchanged, what is the new deficit ratio?
- Error redoA student computes the multiplier as one divided by 0.8, which gives 1.25. What is the correct multiplier when the marginal propensity to consume is 0.8?
03 Answers and one-line notes
| # | Answer | One-line note |
|---|---|---|
| 1 | $5 billion | The surplus is 80 billion minus 75 billion, which is 5 billion dollars. |
| 2 | $8 billion | The deficit is 90 billion minus 82 billion, which is 8 billion dollars. |
| 3 | $3,000 | Taxable income is 20,000 dollars and 15 per cent of that is 3,000 dollars. |
| 4 | Higher government spending and lower taxes | Both measures raise aggregate demand directly. |
| 5 | $50 billion | The multiplier is one divided by 0.2, which is five, so 10 billion times five is 50 billion. |
| 6 | $20 billion | The tax multiplier is minus 0.8 divided by 0.2, which is minus four, so 5 billion times four is 20 billion. |
| 7 | Tax receipts fall and benefit payments rise on their own, softening the fall in aggregate demand | No new measure is needed, which is why the effect is called automatic. |
| 8 | 40 per cent | The share is 120 divided by 300 and multiplied by 100, which is 40 per cent. |
| 9 | About 4.85 per cent | The deficit is 10 billion against a GDP of 206 billion, which is about 4.85 per cent. |
| 10 | 5 | The multiplier is one divided by one minus 0.8, which equals five. |
04 What to do after marking
- After marking, redo only the wrong items and write down which step went wrong (formula, unit, or misread number).
- Repeat the same item two days later; move to the next paper only when both attempts are correct.
- Parents only need the answer and note columns; there is no need to explain every item.
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