Evaluate the microeconomic and macroeconomic effects of a government policy of cutting public expenditure rather than raising taxes as a means of reducing a fiscal deficit
Edexcel A-Level Economics Paper 3 June 2017 Insert
With reference to the information provided and your own knowledge, evaluate the microeconomic and macroeconomic effects of a government policy of cutting public expenditure rather than raising taxes as a means of reducing a fiscal deficit. (25 marks)
Plan
- Paragraph 1
- Argument: one microeconomic effect of cutting spending could be market failure, if the government cut subsidies
- Diagram: externalities
- Evaluation: there are other ways to reduce market failure such as maximum prices
- Paragraph 2
- Argument: one macroeconomic effect of cutting spending could be a decrease in potential growth, due to spending cuts on infrastructure projects
- Diagram: decrease in LRAS
- Evaluation: depends on the state of the economy
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