Which is larger, the spending or the tax multiplier?

The spending multiplier is larger, because a tax change works only through the part that is consumed.

Do automatic stabilisers need new legislation?

No, tax revenue and welfare spending respond to the cycle on their own.

How is the deficit ratio calculated?

The budget deficit divided by gross domestic product, expressed as a percentage.

S6 Economics: Fiscal Policy Practice Paper 2

2026-11-01

Tutor Prep Guide · Secondary Economics

Ten items on budget balances, spending and tax multipliers, progressive tax bills and the deficit ratio, plus automatic stabilisers, each with an answer and a one-line note.

Quick answer　Revenue of 96 billion against spending of 90 billion leaves a 6 billion surplus. With a propensity to consume of 0.75 the spending multiplier is four and the tax multiplier is minus three. A 6 billion tax cut lifts demand by 24 billion when the propensity is 0.8.

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 96 billion dollars and spending is 90 billion. What is the budget surplus?
FoundationWith a marginal propensity to consume of 0.75, what is the government spending multiplier?
FoundationGovernment spending rises by 8 billion dollars and the multiplier is four. By how much does aggregate demand rise?
FoundationWith a marginal propensity to consume of 0.75, what is the tax multiplier?
IntermediateThe marginal propensity to consume is 0.8 and taxes are cut by 6 billion dollars. By how much does aggregate demand rise?
IntermediateA taxpayer earns 60,000 dollars, has a 20,000 dollar allowance and faces a 12 per cent rate. What tax is payable?
IntermediateGovernment spending is 240 billion dollars and GDP is 600 billion. What share of GDP does spending take?
ChallengeThe budget deficit is 9 billion dollars and GDP is 180 billion. What is the deficit ratio?
ChallengeIn a recession, how do progressive taxes and unemployment benefits act as automatic stabilisers?
Error redoA student uses one divided by 0.8, or 1.25, as the spending multiplier and concludes that 10 billion dollars of spending adds only 12.5 billion to demand. What is the correct rise?

03　Answers and one-line notes

#	Answer	One-line note
1	$6 billion	The surplus is 96 billion minus 90 billion, which is 6 billion dollars.
2	4	The multiplier is one divided by 0.25, which is four.
3	$32 billion	Eight billion times four gives 32 billion dollars.
4	Minus 3	The tax multiplier is minus 0.75 divided by 0.25, which is minus three.
5	$24 billion	The tax multiplier is minus four, so a 6 billion dollar cut lifts demand by 24 billion.
6	$4,800	Taxable income is 40,000 dollars, and 12 per cent of that is 4,800 dollars.
7	40 per cent	240 billion divided by 600 billion is 40 per cent.
8	5 per cent	The deficit ratio is 9 billion divided by 180 billion, which is 5 per cent.
9	Tax revenue falls and welfare spending rises automatically, softening the fall in demand	Both move automatically against the cycle, which damps the multiplier effect.
10	$50 billion	The multiplier is one divided by 0.2, which is five, so 10 billion becomes 50 billion.

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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