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AS Macro Fiscal Policy Questions
- 2. Context – the size of the deficit
- 3. 2:18:10 PM “If we don't get a grip on government spending, there will be no growth.” George Osborne, 2011
- 4. 2:18:10 PM “If we don't get a grip on government spending, there will be no growth.” George Osborne, 2011 “The danger of having no growth, or little growth, for a long time is high; you get a number of vicious cycles which come into play…You're playing with fire when you get to low growth rates”
- 5. Government spending and taxation
- 6. Discuss the effectiveness of cuts in government spending as a means of meeting the government’s macroeconomic objectives • Scrapping investment projects – job losses, impact on potential GDP, negative multiplier effects Argument 1: Depends on where cuts are made • Will other components of AD help to compensate? E.g. Exports? Consumer spending? Argument 2: Depends on how deep cuts are • Euro economy is in crisis? • Government has already lost AAA credit rating despite cuts in government spending Argument 3: Depends on external economic events 2:18:10 PM
- 7. Discuss the effectiveness of cuts in government spending as a means of meeting the government’s macroeconomic objectives • Scrapping investment projects – job losses, impact on potential GDP, negative multiplier effects Argument 1: Depends on where cuts are made • Will other components of AD help to compensate? E.g. Exports? Consumer spending? Argument 2: Depends on how deep cuts are • Euro economy is in crisis? • Government has already lost AAA credit rating despite cuts in government spending Argument 3: Depends on external economic events 2:18:10 PM
- 8. Discuss the effectiveness of cuts in government spending as a means of meeting the government’s macroeconomic objectives • Scrapping investment projects – job losses, impact on potential GDP, negative multiplier effects Argument 1: Depends on where cuts are made • Will other components of AD help to compensate? E.g. Exports? Consumer spending? Argument 2: Depends on how deep cuts are • Euro economy is in crisis? • Government has already lost AAA credit rating despite cuts in government spending Argument 3: Depends on external economic events 2:18:10 PM
- 9. To what extent would tax reductions help to bring about stronger growth in the UK economy? 2:18:10 PM To what extent Requires good evaluation Lots of uncertainty at the moment Evaluate the point you are making in each paragraph!
- 10. To what extent would tax reductions help to bring about stronger growth in the UK economy? 2:18:10 PM To what extent Requires good evaluation Lots of uncertainty at the moment Tax reductions 1/ Which taxes might be cut? 2/ Consumer or business taxes? Evaluate the point you are making in each paragraph!
- 11. To what extent would tax reductions help to bring about stronger growth in the UK economy? 2:18:10 PM To what extent Requires good evaluation Lots of uncertainty at the moment Tax reductions 1/ Which taxes might be cut? 2/ Consumer or business taxes? Stronger growth 1/ Context – weak recovery 2/ Short term growth? 3/ Long term growth? Evaluate the point you are making in each paragraph!
- 12. To what extent would tax reductions help to bring about stronger growth in the UK economy? 2:18:10 PM To what extent Requires good evaluation Lots of uncertainty at the moment Tax reductions 1/ Which taxes might be cut? 2/ Consumer or business taxes? Stronger growth 1/ Context – weak recovery 2/ Short term growth? 3/ Long term growth? Different tax cuts for short and long term growth aims? Evaluate the point you are making in each paragraph!
- 13. To what extent would tax reductions help to bring about stronger growth in the UK economy? 2:18:10 PM Consumer spending • Cuts in VAT or income tax to boost demand Business investment • Lower corporation tax to increase investment Lower employment taxes • Reduced national insurance taxes Reductions in fuel / carbon taxes • Lower costs for businesses, less inflation
- 14. To what extent would tax reductions help to bring about stronger growth in the UK economy? 2:18:10 PM Low confidence – tax cuts likely to be saved Consumer spending • Cuts in VAT or income tax to boost demand Business investment • Lower corporation tax to increase investment Lower employment taxes • Reduced national insurance taxes Reductions in fuel / carbon taxes • Lower costs for businesses, less inflation
- 15. Direct tax cuts and AD General Price Level Real National Output (Y) SRAS1 AD1 Y1 Y2 P1 P2 Will tax cuts boost demand? 2:18:10 PM AD2
- 16. To what extent would tax reductions help to bring about stronger growth in the UK economy? 2:18:10 PM Low confidence – tax cuts likely to be saved Businesses might invest overseas instead Consumer spending • Cuts in VAT or income tax to boost demand Business investment • Lower corporation tax to increase investment Lower employment taxes • Reduced national insurance taxes Reductions in fuel / carbon taxes • Lower costs for businesses, less inflation
- 17. To what extent would tax reductions help to bring about stronger growth in the UK economy? 2:18:10 PM Low confidence – tax cuts likely to be saved Businesses might invest overseas instead Skills shortages limit employment creation Consumer spending • Cuts in VAT or income tax to boost demand Business investment • Lower corporation tax to increase investment Lower employment taxes • Reduced national insurance taxes Reductions in fuel / carbon taxes • Lower costs for businesses, less inflation
- 18. To what extent would tax reductions help to bring about stronger growth in the UK economy? 2:18:10 PM Low confidence – tax cuts likely to be saved Businesses might invest overseas instead Skills shortages limit employment creation Consumer spending • Cuts in VAT or income tax to boost demand Business investment • Lower corporation tax to increase investment Lower employment taxes • Reduced national insurance taxes Reductions in fuel / carbon taxes • Lower costs for businesses, less inflation Conflicts with environmental policies
- 19. Lower taxes for businesses General Price Level Real National Output (Y) SRAS1 AD1 Y1 Y2 P1 P2 2:18:10 PM SRAS2
- 20. Can tax changes drive LRAS higher? General Price Level Real National Output (Y) SRAS1 Y1 Y2 P1 2:18:10 PM LRAS1 LRAS2 AD1 AD2 Y3
- 21. Good evaluation approaches 2:18:10 PM Evaluate the point you are making in each paragraph! Tax cuts on their own are insufficient in the current UK economic context Which tax cuts will boost short term growth? Which tax changes might help long term competitiveness? Consequences for other macro objectives?
- 22. Good evaluation approaches 2:18:10 PM Evaluate the point you are making in each paragraph! Tax cuts on their own are insufficient in the current UK economic context Which tax cuts will boost short term growth? Which tax changes might help long term competitiveness? Consequences for other macro objectives?
- 23. Good evaluation approaches 2:18:10 PM Evaluate the point you are making in each paragraph! Tax cuts on their own are insufficient in the current UK economic context Which tax cuts will boost short term growth? Which tax changes might help long term competitiveness? Consequences for other macro objectives?
- 24. Good evaluation approaches 2:18:10 PM Evaluate the point you are making in each paragraph! Tax cuts on their own are insufficient in the current UK economic context Which tax cuts will boost short term growth? Which tax changes might help long term competitiveness? Consequences for other macro objectives?
- 25. 2:18:10 PM Remember to include a short reasoned conclusion at the end to boost evaluation marks
- 26. 2:18:10 PM Remember to include a short reasoned conclusion at the end to boost evaluation marks “On balance I feel the strongest argument is for targeted tax cuts for businesses to boost jobs in the short term and investment in the long run.”
- 27. 2:18:10 PM
- 28. Get help from fellow students, teachers and tutor2u on Twitter: #econ2 2:18:10 PM