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A Minister for Finance prepares the following draft Current Budget for 2009: Government Current Income €5,600m Government Current Spending €7,600m (i) State two examples of government current income and two examples of government current expenditure - Leaving Cert Economics - Question 4 - 2009
Question 4
A Minister for Finance prepares the following draft Current Budget for 2009: Government Current Income €5,600m Government Current Spending €7,600m (i) State two ex... show full transcript
Worked Solution & Example Answer:A Minister for Finance prepares the following draft Current Budget for 2009: Government Current Income €5,600m Government Current Spending €7,600m (i) State two examples of government current income and two examples of government current expenditure - Leaving Cert Economics - Question 4 - 2009
Step 1
State two examples of government current income and two examples of government current expenditure.
Answer
Examples of government current income include:
- Direct tax revenue (e.g., income tax)
- Indirect tax revenue (e.g., VAT)
Examples of government current expenditure include:
- Salaries of state employees
- Cost of running public services (e.g., healthcare, education)
Step 2
Step 3
If you were Minister for Finance and this Current Budget Deficit was predicted: State and explain two measures you would take to help reduce this deficit;
Answer
- Increase income tax:
- Explanation: This measure would generate additional revenue for the government, which could be used to cover the deficit.
- Cut social welfare spending:
- Explanation: Reducing social welfare spending can lower the government’s expenditures, thus helping to bridge the budget gap.
Step 4
Explain how each measure you have stated could affect the standard of living within the country.
Answer
- Increasing income tax could lead to lower disposable incomes for individuals, resulting in reduced consumer spending and lower living standards.
- Cutting social welfare spending may adversely affect vulnerable groups in society, potentially increasing poverty rates and decreasing overall living standards.
Step 5
State and explain two reasons for this development.
Answer
- Increased unemployment:
- With rising unemployment, there are fewer individuals contributing income tax, leading to reduced tax revenues.
- Reduced consumer spending:
- Consumers are spending less due to economic uncertainty, which diminishes sales tax revenues collected by the government.
Step 6
State and explain the economic effects which this increase in VAT may have on each of the following: Consumer purchases;
Answer
The increase in VAT may lead to decreased consumer purchases as higher prices can discourage spending, with consumers opting to buy less or seek alternative, cheaper options.
Step 7
State and explain the economic effects which this increase in VAT may have on each of the following: Government Current Budget.
Answer
The increase in VAT could lead to increased revenue for the government, which may aid in offsetting the current budget deficit. However, it could also result in lower consumer spending, which may eventually stall economic growth.
Step 8
Step 9
Suggest two measures the government could take to discourage such activities;
Answer
- Reduce direct taxation:
- Lowering tax rates could incentivize individuals to declare their income, thereby reducing the black economy.
- Better enforcement by revenue commissioners:
- Strengthening enforcement measures can deter individuals from participating in the black economy by increasing the likelihood of penalties.
Step 10
If these measures were successful, state and explain how they may affect the Government’s Current Budget.
Answer
Successful measures to discourage black economy activities could lead to a broader tax base, resulting in increased tax revenues for the government. This could help improve the Current Budget by increasing available funds for public services and reducing budget deficits.