DSE Economics: Fiscal Policy — Tutor Lesson Plan (budget, multiplier, automatic stabilisers)

2026-11-01

Tutor lesson-prep guides · Secondary economics

Students say the government should spend to boost the economy, but cannot say how a two billion injection becomes ten, or why a tax cut is weaker.

Objectives — The student can classify revenue and spending and read a surplus or deficit, apply the multiplier to a policy change, and explain automatic stabilisers alongside the two lags.

01 Prerequisites (3-minute check)

If any of these fails, fix it before the lesson starts.

Skill	Quick check	Pass mark
Aggregate demand	AD = C + I + G + (X – M)	G is government spending
Marginal propensity to consume	Definition of MPC	MPC + MPS = 1
Percentages	80 per cent of 200	160

02 Lesson flow (60 minutes)

Time	Stage	Tutor does	Student does
0-8 min	Prerequisite check	Four components of AD	Points to G
8-22 min	Revenue and spending	Tax, land sales, welfare, infrastructure	Sorts six items
22-38 min	Multiplier	Change in Y = change in G x 1/(1-MPC)	1000 billion
38-48 min	Automatic stabilisers	Progressive tax, unemployment benefit	States the direction
48-56 min	Limits	Recognition lag, implementation lag, crowding out	One example each
56-60 min	Exit check	Three questions marked	Works alone

03 Teaching script (read it out)

Scene 1: The budget is more than income minus spending

Revenue: profits tax, salaries tax, stamp duty, land premium from land sales.
Spending: education, health, social welfare, infrastructure, security.
Revenue above spending is a surplus, the reverse is a deficit, and a deficit is covered from reserves or borrowing.

Student sorts six items into the revenue and spending columns.

Scene 2: The multiplier: an injection does not stop at its own size

Households spend a share of the income they receive, which becomes someone else’s income, and the round repeats.
Total change in Y = change in G x 1/(1 – MPC). With MPC = 0.8 the multiplier is 5, so a 200 billion injection raises aggregate demand by 1000 billion.
A tax cut of 50 billion is weaker: households save part of it first, only 50 x 0.8 = 40 billion becomes spending, and the final change is 200 billion.

Student computes the change in Y for MPC = 0.75 and a rise in G of 80 billion (320 billion).

Scene 3: Automatic stabilisers work without a vote

Progressive tax collects more in a boom and less in a slump; unemployment benefit pays out more in a slump.
Neither needs new legislation, so both act quickly, but they only dampen the cycle rather than remove it.
Limits: recognition lag, implementation lag, and crowding out when government borrowing pushes interest rates up and private investment down.

Keep apart: automatic stabilisers are built in, discretionary fiscal policy is a deliberate decision.

04 Question types and worked steps

Type	Example	Steps	Answer
Budget balance	Revenue 600, spending 650	Compare the two	Deficit of 50
Multiplier	MPC = 0.8	1/(1-MPC), then multiply the injection	1000 billion
Tax cut	Cut of 50 billion	Multiply by MPC, then by the multiplier	200 billion
Evaluation	Will the policy work	Weigh lags and crowding out	Two sides

Sanity check (teach this): The multiplier is always above one because MPC lies between zero and one; a result below one means the formula was inverted. The change in Y must exceed the injection itself, and with MPC = 0.8 the multiplier is 5.0, a quick check on the order of magnitude.

05 Independent practice (3 questions)

Question	Answer	What to watch
MPC = 0.8, government spending up 200 billion: change in Y	1000 billion	Multiplier 5
MPC = 0.75, change in G of 80 billion	320 billion	Multiplier 4
Why a 50 billion tax cut does less	200 billion	Part is saved

06 Common mistakes and what to say

Mistake	Student writes	Say this
Multiplier inverted	writes 1/MPC	It is 1 divided by (1 – MPC), not by MPC.
Tax cut not multiplied by MPC	says 50 becomes 250 at once	Part of a tax cut is saved, so multiply by MPC first.
Stabilisers called discretionary	says they need legislation	They are built in and need no new law.
Crowding out ignored	claims the policy always works	Borrowing can raise rates and displace private investment.

07 Homework (paper, section and question numbers)

DSE Economics practice paper (macro policy) — Section B questions 3 to 4: multiplier and evaluation
Secondary economics chapter index — All chapters

08 Exit check (last 5 minutes)

Question	Answer	Decision
Multiplier when MPC = 0.8	5	All right: move to monetary policy
Revenue 600, spending 650	Deficit of 50	One wrong: re-teach the budget
Do stabilisers need legislation	No, they are built in	Two wrong: repeat scene 3

09 Tutor FAQ

Must the formula be memorised?

Yes, 1/(1-MPC); questions usually supply MPC and want two steps.

Does Hong Kong have stabilisers?

Yes: tax revenue swings with the economy and welfare spending rises in a slump.

Is a deficit always bad?

It depends on the use and the cycle; infrastructure can raise capacity, structural deficits are the problem.

Find a tutor — free Tutor Registration →

A TutorZone lesson-prep guide. Written by the TutorZone team; questions and lesson flow are original and are not taken from any school or publisher material.