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State two economic effects which an increasing level of unemployment may have on the Government’s Current Budget Deficit - Leaving Cert Economics - Question 5 - 2010
Question 5
State two economic effects which an increasing level of unemployment may have on the Government’s Current Budget Deficit. Effect 1: Effect 2:
Worked Solution & Example Answer:State two economic effects which an increasing level of unemployment may have on the Government’s Current Budget Deficit - Leaving Cert Economics - Question 5 - 2010
Step 1
Effect 1: Increased Social Welfare Payments
Answer
An increasing level of unemployment leads to a higher number of individuals relying on social welfare programs. Consequently, the government must increase its social welfare payments to support these individuals, resulting in an increased budget deficit. The funds allocated to social welfare will thus strain the government's financial resources, ultimately leading to a larger deficit.
Step 2
Effect 2: Reduced Income Tax Revenue
Answer
With rising unemployment, there is generally a decline in income tax revenue due to fewer people being employed. This reduction occurs as the tax base shrinks; fewer workers mean less income to tax, contributing to a decrease in overall tax revenue for the government, further exacerbating the current budget deficit.