Evaluate the likely impact of measures which a government could take to reduce the economy’s national debt

Edexcel A-Level Economics 25 Mark Question

In 2012, it was estimated that Japan’s national debt was equal to 214.3% of its GDP, and Greece’s national debt was equal to 161.3% of its GDP. Evaluate the likely impact of measures which a government could take to reduce the economy’s national debt. Refer to a developed economy of your choice in your answer. (Specimen)

Plan

• Paragraph 1
  • Argument: one impact of measures such as higher income taxes is a decrease in economic growth
  • Diagram: decrease in AD, negative multiplier effect
  • Evaluation: trade-offs depend on the tax band and the size of the multiplier
• Paragraph 2
  • Argument: another impact of measures such as cutting spending on infrastructure projects is a decrease in potential growth
  • Diagram: decrease in LRAS
  • Evaluation: depends on the state of the economy

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