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The following figures were presented in Budget 2018: Government Current Income €67.4 bn Government Current Expenditure €70.1 bn (i) Is the government planning a budget deficit or budget surplus? Explain your answer - Leaving Cert Economics - Question 5(a) - 2018
Question 5(a)
The following figures were presented in Budget 2018: Government Current Income €67.4 bn Government Current Expenditure €70.1 bn (i) Is the government planning a bu... show full transcript
Worked Solution & Example Answer:The following figures were presented in Budget 2018: Government Current Income €67.4 bn Government Current Expenditure €70.1 bn (i) Is the government planning a budget deficit or budget surplus? Explain your answer - Leaving Cert Economics - Question 5(a) - 2018
Step 1
Is the government planning a budget deficit or budget surplus? Explain your answer.
Answer
To determine whether the government is planning a budget deficit or surplus, we need to analyze the presented figures:
- Government Current Income: €67.4 billion
- Government Current Expenditure: €70.1 billion
Calculating the difference:
Since the expenditure exceeds the income, the government is planning a budget deficit amounting to €2.7 billion. This indicates that the government is planning to spend more than it receives in current revenue.
Step 2
State the effect which Budget 2018, calculated in part (i) above, will have on the national debt. Explain your answer.
Answer
The budget deficit of €2.7 billion will have the following effects on the national debt:
- The national debt will increase because the government will need to borrow €2.7 billion to cover the deficit.
- Given that the current national debt is approximately €200 billion, this additional borrowing will further increase the total national debt, leading to potential long-term financial implications.
Step 3
State and explain one economic advantage and one economic disadvantage of increasing the national debt.
Answer
Economic Advantage:
- Current cost of borrowing is low: A low interest rate environment allows the government to finance its national debt with lower interest payments, freeing up resources for essential services.
Economic Disadvantage:
- Increased annual interest repayments: As the national debt increases, the government may face a higher burden of interest payments which could limit funding for public services or lead to cuts in government spending.