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WalesEconomicsQuick questions
Economics in Action (AS Unit 2)
Quick questions on Macroeconomic policy instruments - WJEC A-Level Economics
3short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What is fiscal policy?Show answer
An expansionary fiscal policy (higher government spending or lower taxes) raises aggregate demand directly through G and indirectly by raising disposable income and consumption, shifting AD right to boost output and employment, usually at the cost of a larger budget deficit. A contractionary fiscal policy does the reverse to cool an overheating economy or reduce a deficit. Fiscal policy also has supply-side effects: spending on infrastructure, education and training, and tax incentives to work and invest, can raise potential output. Its limitations are time lags (especially in planning spending), the risk of crowding out private spending, the effect on public debt, and the political difficulty of raising taxes or cutting spending.
What is q1?Show answer
Distinguish between fiscal policy and monetary policy. [2 marks]
What is q2?Show answer
Explain one limitation of supply-side policy. [3 marks]
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