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The Budget is a statement of the Government's fiscal policy - Leaving Cert Economics - Question 5 - 2011
Question 5
The Budget is a statement of the Government's fiscal policy. The Irish Government, in its National Recovery Plan 2011-2014 committed to reducing the General Governme... show full transcript
Worked Solution & Example Answer:The Budget is a statement of the Government's fiscal policy - Leaving Cert Economics - Question 5 - 2011
Step 1
Explain the term 'fiscal policy'.
Answer
Fiscal policy refers to any action taken by the government to influence the timing, magnitude, and structure of current revenue and expenditure. It is a vital tool used by governments to manage economic activity, including taxation and public spending, in order to stabilize the economy and promote growth.
Step 2
State and explain four possible economic effects on the Irish economy of the government's plan to significantly reduce the deficit over the next four years.
Answer
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Reduced Standard of Living: Households may face reduced disposable incomes due to higher taxes, impacting their living standards.
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Public Services Loss: Potential cuts to essential public services may arise as health services and other areas may face funding cuts, particularly if government revenues decline.
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Level of Economic Activity / Demand Fall: With lower disposable income, domestic demand can decrease, affecting overall economic activity and leading to a sluggish economy.
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Public Sector Effects: Employment numbers in the public sector may drop, leading to higher unemployment rates as public sector wages and jobs are reduced.
Step 3
Step 4
Outline four economic arguments in favour of privatisation.
Answer
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Improved Quality / Choice of Services: Privatisation may enhance the quality and variety of services available, as private firms often aim to increase customer satisfaction.
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More Competitive Prices: Increased competition among businesses following privatisation can lead to lower prices for consumers.
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Employment Opportunities for Innovation: The new private entities may create additional jobs and foster innovation in service delivery.
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Revenue for the State: Selling state-owned assets can generate immediate revenue for the government which can be used for development projects.
Step 5
Discuss four measures the Minister for Finance could take to reduce the public sector wage bill.
Answer
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Reduce the Numbers Employed in the Sector: Implementing a hiring freeze or voluntary redundancy packages to reduce staffing levels.
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Reduce Rates of Pay per Employee: Introducing a pay freeze or lesser pay increases for public sector employees could help manage the wage bill.
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Change Terms of Employment: Modifying existing contracts to include reduced benefits or different working conditions could decrease obligations.
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Outsource Services: By contracting out public services to private firms, the government might reduce the wage costs associated with public sector employees.