Essay
Essay Unit 2 ECON2 - Economics: Fiscal and Supply Side Policies
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Fiscal and supply side policies essay plansExplain possible economic reasons for changes in the level and
distribution of government expenditure. (15 marks)
Intro
Government expenditure is financed through taxation and is the
money spent on goods and services by the government to
theoretically maximise the welfare of the citizens in the country
Changes to the level and distribution of government expenditure
can occur for multiple reasons
o Recessions and booms
o Help to achieve economic objectives
o Increase welfare
o Publics goods and services
Interconnectedness of factors causing changes
Different economic reasons
Economic growth
o Infrastructure investment
o Human capital development
o Education and healthcare
Fiscal policy
o Expansionary in a recession
o Contractionary in a boom
o Austerity measures in economic stability
o Cyclical spending patterns
Income inequality
o Benefits system
o Transfer payments – benefits and pensions
o Progressive taxation used to increase government revenue
Political factors
o Labour or conservative governments can have different
priorities on government spending
o Labour government may spend more on welfare programmes
o Conservative government may spend more on economic
growth programmes
o Public opinion
o Electoral cycles
Global economic trends
, o International conditions affect spending on exports and
imports
o May spend less or more in foreign markets depending on
whether they are thriving or not
o International conditions
o Trade agreements influence budget allocation
o Global crises and exchange rates
Changing demand
o Shown on AD/AS diagram
o Increased demand could cause government to implement
subsidies or invest in order to increase supply and decrease
the shortage
To what extent should government borrowing be a cause for
concern? (25 marks)
Intro
Government borrowing is the practice of raising government
revenue through taxation or other debt instruments
This government revenue is then used to spend on various other
sectors of the economy which are in need of aid
Government borrowing has many consequences which can worsen
the economy and fail to achieve economic objectives
o Can lead to government failure
Government borrowing can also have positive effects on the
economy and help to achieve government objectives
o Growth, recovery
Economic stability
Risks of excessive borrowing
Can contribute to inflation
Can impact the purchasing power of the currency
High debt can increase long term interest rates
Makes the economy less stable
Fiscal discipline
Crowding out of the private sector
o Rising public sector spending drives down private sector
spending
o Higher costs of investment and loans
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