Explain ways in which a government can use fiscal policy to affect the pattern of economic activity
AQA AS-Level Economics June 2022 Paper 2 Insert
Extract F (lines 1–2 and 8) states: ‘As part of fiscal policy, government spending can be used to allocate resources to different regions and sectors of the economy and consequently, change the pattern of economic activity...Taxation also has a role to play in affecting the pattern of activity’.
Explain ways in which a government can use fiscal policy to affect the pattern of economic activity. (10 marks)
Fiscal policy is the use of government spending and taxation and it is mainly used to influence the level of aggregate demand in the economy. Changes in taxes and spending can often also affect aggregate supply but also the pattern of economic activity. Changes in the pattern of economic activity means that some areas of the economy might grow and others may contract. Rishi Sunak launched a £2 billion scheme to help create jobs for young people. As geographical mobility of labour improves, it means it is easier for young people to travel to work. As occupational of labour improves, it is also easier for young people to gain skills. Whilst this project injects money into the economy, it increases aggregate demand. It also increases long-run aggregate supply as it leads to more skills and human capital. It also changes the pattern of economic activity as it can incentivise young people to take up training schemes rather than go to university. Another example of a way that spending can influence economic activity is that if the goverment increases spending on infrastructure projects like HS2 it makes it faster and easier to travel across the UK on the train. This reduces the need for cars and fuel, so consumers change their patterns of economic activity.
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