Fiscal Policy (Government Spending and Taxation)

    OCR
    GCSE

    Fiscal policy involves the manipulation of government spending (G) and taxation (T) to influence Aggregate Demand (AD) and Aggregate Supply (AS). Candidates must analyse the use of expansionary and contractionary stances to manage the economic cycle, stabilize inflation, and promote growth. Assessment requires detailed knowledge of the distinction between automatic stabilisers and discretionary policy, the mechanics of the fiscal multiplier, and the implications of structural versus cyclical budget deficits on the National Debt.

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    Objectives
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    Exam Tips
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    Pitfalls
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    Key Terms
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    Mark Points

    What You Need to Demonstrate

    Key skills and knowledge for this topic

    • Award marks for logical chains of reasoning connecting tax changes to disposable income, consumption, and Aggregate Demand.
    • Credit specific differentiation between direct taxes (Income Tax, Corporation Tax) and indirect taxes (VAT, Excise Duties).
    • Candidates must link government spending on public/merit goods to supply-side improvements (e.g., education increasing workforce productivity).
    • High-level responses must evaluate trade-offs, such as the conflict between expansionary fiscal policy and inflation control.

    Marking Points

    Key points examiners look for in your answers

    • Award marks for logical chains of reasoning connecting tax changes to disposable income, consumption, and Aggregate Demand.
    • Credit specific differentiation between direct taxes (Income Tax, Corporation Tax) and indirect taxes (VAT, Excise Duties).
    • Candidates must link government spending on public/merit goods to supply-side improvements (e.g., education increasing workforce productivity).
    • High-level responses must evaluate trade-offs, such as the conflict between expansionary fiscal policy and inflation control.

    Examiner Tips

    Expert advice for maximising your marks

    • 💡In 6-mark 'Analyse' questions, provide two distinct, developed chains of reasoning linked explicitly to the case study data.
    • 💡For 12-mark 'Evaluate' questions, structure the response as: Argument For, Argument Against, and a supported Judgement (MOPS: Magnitude, Opportunity cost, Prioritisation, Short/Long term).
    • 💡When discussing income tax, explicitly mention 'disposable income' as the transmission mechanism to consumption.
    • 💡Use precise terminology: refer to 'progressive taxation' when discussing income redistribution.

    Common Mistakes

    Pitfalls to avoid in your exam answers

    • Conflating 'Fiscal Policy' (government spending/tax) with 'Monetary Policy' (interest rates/money supply).
    • Confusing a 'Budget Deficit' (annual flow) with 'National Debt' (accumulated stock).
    • Asserting that increased taxation always leads to a decrease in government revenue without considering elasticity or magnitude.
    • Failing to apply the specific context of the stimulus material (e.g., referring to a generic economy rather than the one in the case study).

    Study Guide Available

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    Key Terminology

    Essential terms to know

    Likely Command Words

    How questions on this topic are typically asked

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    Explain
    Analyse
    Evaluate
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