Evaluate the impact of a large fiscal deficit and national debt on a country’s economy

Edexcel A-Level Economics 25 Mark Question

Japan’s budget deficit for 2017/18 is expected to be 4.6% of GDP. Its national debt is forecast to increase to above 250% of GDP by 2019. Evaluate the impact of a large fiscal deficit and national debt on a country’s economy. (June 2019)

Plan

• Paragraph 1
  • Argument: one impact of a large fiscal deficit is economic growth
  • Diagram: increase in AD, multiplier effect
  • Evaluation: depends on the state of the economy and trade-offs, possible that economic growth can lead to a fall in the size of a cyclical fiscal deficit
• Paragraph 2
  • Argument: one impact of high levels of national debt is the need for austerity measures
  • Diagram: decrease in AD, decrease in LRAS
  • Evaluation: depends which taxes are raised or which spending is cut

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