Unit 2 ECON2 - Economics: The National Economy (AQAALEVELECONOMICSPAPER2MACROECONOMICSBUDGETSURPLUSPASTEXAMQUESTIONESSAY)
Institution
AQA
This is an essay about Budget Surplus. it answers an AQA past question. Ideal for revision and it is a very useful guide for aspiring A/A* grade students as it successfully met Assessment Objectives of AQA
Unit 2 ECON2 - Economics: The National Economy (AQAALEVELECONOMICSPAPER2MACROECONOMICSBUDGETSURPLUSPASTEXAMQUESTIONESSAY)
All documents for this subject (37)
3
reviews
By: sabbitha987 • 7 months ago
By: jedakat • 2 year ago
By: dianer • 3 year ago
Seller
Follow
ahnafullah
Reviews received
Content preview
KHALED ULLAH
Evaluate whether achieving a budget surplus is a desirable objective of economic policy.
[25 marks]
A budget surplus occurs when government tax receipts are greater than
government spending. It means the government can either save money or
pay off existing national debt. Some may argue that it is a desirable
objective because it prevents future crisis. However, currently the UK is in
a recovery position of the boom and bust cycle with only a growth of 0.1%
in GDP, fall in the last fiscal quarter stated as “bleak” (Economist) and a
fall in inflation rate at 1.3%, less than the government’s target of 2%
prove that achieving a budget surplus is not desirable at present.
Therefore, the extent to which achieving a budget surplus is a desirable
objective of economic policy is limited.
Some argue that a budget surplus is desirable because it stops the
government may want to reduce and control the inflation rate; which
could be done via reducing spending such as welfare payments which will
result in a lower confidence from consumers resulting in a shift in AD and
GDP inwards, reducing price level i.e. inflation. Therefore, during periods
of high inflation, budget surplus is desirable. However, at present, the
UK’s inflation fell by 0.7% from its target and there was a fall in GDP too.
Consequently, a budget surplus right now is not desirable because it will
create obstacles making recovery and the path to a boom period difficult.
This is because, at present, government spending will create growth and
opportunities. In order to do so, the government must run on a deficit,
where spending is greater than taxation. This could be done via cuts in
corporation tax. A reduction in corporation tax will provide firms with a
greater retained profit. This means that their cost of production will
decrease, as a result they will be able to produce more, thus elevating
increased output. Which will result in a shift outward for SRAS which will
balance out the inflationary pressure. Furthermore, firms may wish to
employ more workers too. This will result in a shift in AD as
unemployment reduces. As a result, confidence will rise causing an
increase in spending. The shift in SRAS will balance the inflationary
pressure too. Therefore, to a greater extent budget surplus is not a
desirable economic policy.
The diagram shows a shift in SRAS 2 from
SRAS1 because of the cuts in corporation
tax, simultaneously, there is a shift to AD 2
form AD1 because of the firms employing
more workers due to cuts in corporation
tax to increase output and a result of an
increase in spending. As this results in
equilibrium B, the LRAS curve has
potential to shift to DIAGRAM
point B1 (CP) because
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller ahnafullah. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $6.46. You're not tied to anything after your purchase.
