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EnglandEconomics

2.6-2.9 Government policy and market failure

5 dot points across 5 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

How does the government use spending and taxation to manage the economy?

What fiscal policy is, how changes in government spending and taxation affect growth, employment and prices, and the costs and benefits of using it.
An OCR J205 answer on fiscal policy: how government spending and taxation are used to pursue economic objectives, their effect on growth, employment and inflation, and the trade-offs involved.
9 min answer →

When do free markets fail to allocate resources well, and how can the government step in?

What market failure is, the main causes (externalities, merit and demerit goods, public goods), and how the government can intervene to correct it.
An OCR J205 answer on market failure: externalities, merit and demerit goods and public goods, why markets misallocate resources, and how government intervention can correct it.
10 min answer →

How do interest rates set by the central bank affect spending, saving and the wider economy?

What monetary policy is, how the central bank uses interest rates to affect saving, borrowing, spending and investment, and the effects on growth and inflation.
An OCR J205 answer on monetary policy: how the Bank of England uses interest rates to affect saving, borrowing, spending and investment, and the effects on growth and inflation, with interest calculations.
10 min answer →

How can the government raise the economy's productive capacity in the long run?

What supply-side policy is, the main supply-side measures (education, training, infrastructure, incentives), and how they raise productivity and long-run growth.
An OCR J205 answer on supply-side policy: how measures such as education, training, infrastructure and incentives raise productivity and the economy's long-run productive capacity.
9 min answer →

How does the government raise money through taxes, and what does it spend it on?

The types of tax (direct and indirect, progressive and regressive), the main areas of government spending, and the purposes of taxation.
An OCR J205 answer on taxation and government spending: direct versus indirect taxes, progressive versus regressive taxes, the main areas of public spending, and why governments tax.
9 min answer →