FISCAL POLICY

0455/21/O/N/23

Digital money, such as cryptocurrencies, is increasingly being used. Digital

money transactions take place on electronic devices such as computers and
smartphones. However, there can be market failure due to external costs
arising from high energy usage of nonrenewable sources. One way of
reducing external costs is to tax the product.
 Identify two types of tax. [2]

0455/23/O/N/22

Romania’s indirect tax rate was 19% between 2017 and 2019. There is a high
proportion of foreign multinational companies (MNCs), especially US MNCs, in
Romania. MNCs have helped to increase productivity in Romania and lower
its unemployment rate. There are also benefits of MNCs to their home
countries.

Define, with an example, an indirect tax. [2]

0455/22/O/N/22

In 2019, Russia had an unemployment rate of 4.6%. Russia experienced full

employment in the past. Its government wants unemployment to be lower. In
2018, the Russian government cut its spending which may have increased
poverty. In both 2018 and 2019, the government did not change its income tax
rate. Russia operates a proportional tax rate system.
 Explain the difference between a proportional income tax system and
a progressive income tax system. [4]

0455/21/M/J/22

Australia’s foreign exchange rate fluctuates. The value of Australia’s exports is

regularly greater than the value of its imports. Australia is Papua New
Guinea’s main trading partner. In 2019, the government of Papua New Guinea
increased income tax to reduce its inflation rate. It used other policy measures
to increase its economic growth rate.
 Analyse how an increase in income tax can affect a country’s inflation
rate. [6]

0455/22/F/M/22

South Africa (SA) experienced a recession in the second half of 2019 and an
unemployment rate of 29%. Only a small proportion of this unemployment was
frictional. South Africa’s foreign exchange rate fell from 1 SA rand = US$0.08
in 2018 to 1 SA rand = US$0.06 in 2019. South Africa had reduced import
tariffs, but in 2019 some South African economists suggested tariffs should be
used to protect its infant industries.
 Discuss whether or not a reduction in income tax will end a
recession. [8]

0455/22/F/M/21

It is estimated that half of Egyptian men smoke. This is one of the highest
rates in the world. In recent years the Egyptian government has increased the
tax on cigarettes. The government and central bank have also tried to reduce
inflation and improve Egypt’s international trade performance. The Egyptian
government could use subsidies to reduce its deficit on the current account of
its balance of payments.
 Identify two qualities of a good tax. [2]
 Explain two reasons why governments tax cigarettes. [4]

0455/22/O/N/20

The population of Hungary is the most obese in Europe. Hungarians eat fewer
vegetables than most Europeans and more food types that may be considered
to be demerit goods. In 2017, the Hungarian government introduced a tax on
unhealthy food, known as the chips tax. The tax has had some success in
moving demand to healthier foods. Some economists suggest that
governments should use price controls as well as taxes to influence the food
market.
 Analyse the effects on income distribution and tax revenue of an
increase in indirect taxes. [6]

0455/22/O/N/20

Mexico has a history of trade deficits. The government is moving the economy
closer to free trade, to try to improve its macroeconomic performance. It was
predicted in 2017 that Mexico’s economy would experience a small rise in its
unemployment rate. In 2017 the economy’s inflation rate was 6.6%, the
highest rate since 2001. A number of policy measures may be used to reduce
inflation, including increasing the rate of income tax.
 Discuss whether or not an increase in the rate of income tax will
reduce inflation. [8]

0455/21/O/N/20

The election of a new president in South Africa in 2018 led to improvement in

business and consumer confidence. Inflation rates fell despite a rise in total
demand. One government policy measure established areas known as
economic zones where firms pay lower, or no, taxes. These zones encourage
domestic firms to become internationally competitive which could reduce the
deficit on the current account of South Africa’s balance of payment.
  Discuss whether or not lower taxes on firms will be beneficial for an
economy. [8]

0455/23/M/J/20

Ireland has one of the lowest rates of corporation tax in Europe. This has
encouraged many multinational companies (MNCs) to produce in Ireland.
Other reasons why firms want to produce in Ireland include access to freer
trade with other European countries, higher labour productivity and
government grants.
 Explain two reasons why governments levy taxes. [4]

0455/22/M/J/20

In 2017, the Japanese government announced improvements to its tax

system. The amount of tax raised is influenced by the size and age distribution
of a country’s population. Japan’s birth and death rates are falling, its
population is ageing, and it has low immigration. Overall, Japan’s population is
decreasing.
 State two qualities of a good tax. [2]

0455/21/M/J/20

Economists are uncertain about the future United States (US) macroeconomic
performance. For instance, in recent years, US unemployment has fallen while
the deficit on the current account of the balance of payments has fluctuated.
Whether its current account deficit will rise or fall in the future may be affected
by proposed tax cuts. Some economists suggest that the US government
should not be concerned about the country’s current account deficit.
 Analyse how tax cuts could increase exports. [6]

0455/22/F/M/20

The Chinese government reformed the Chinese tax system in 2016. It

extended VAT (sales tax) from the sale of goods to the sale of services
enabling it to cut the corporation tax rate. Taxes on goods and services are
usually regressive. The Chinese government wanted to raise living standards
and hoped that a cut in the tax rate firms pay would attract multinational
companies (MNCs) to the country.
 State two reasons for levying taxes. [2]
 Explain the difference between a progressive tax and a regressive
tax. [4]
 Analyse how a cut in the rates of corporation tax and income tax may
influence the number of MNCs setting up in the country. [6]

0455/22/

Teachers in many countries oppose their governments’ cuts in spending on

education. They worry that this could reduce the standard of education and
also the welfare of teachers employed in the state sector. Some teachers
specialise in teaching one subject while others teach a number of subjects.
 Explain two reasons why a government may want to cut spending on
education. [4]

0455/23/M/J/18

The state of California has the most progressive tax system in the USA. The
tax system helps reduce high poverty rates. Policy makers are considering
reforming sales tax in the state to include services, while reducing the use of
direct taxes.
 Define progressive tax. [2]
 Discuss whether a government should increase indirect taxes and
whether it should reduce direct taxes. [8]

0455/22/M/J/18

In February 2016, share prices on stock exchanges fell throughout the world.
There were a number of reasons for this; including concerns about the
slowdown in world growth, the possibility of deflation and unemployment, and
fears that some commercial banks could go out of business.
 Discuss whether or not government policy measures to reduce
unemployment will cause inflation. [8]

0455/21/M/J/18

More governments are imposing taxes on unhealthy food and drinks. Such
taxes are usually regressive. Some of these governments are also increasing
their spending on healthcare. In other countries healthcare is provided by the
private sector. The number of state-owned enterprises is declining in a
number of countries due to privatisation.
 Define regressive tax. [2]
 Analyse why a government imposes taxes. [6]

0455/21/M/J/18

In 2014, the government of Kazakhstan devalued its currency, the tenge. A

year later the country still had a current account deficit. Therefore, in 2016 it
considered adopting a floating exchange rate which might help to remove the
deficit. However, it had concerns that this might affect the country’s inflation
rate which was already high at 17%.
 Analyse how fiscal policy measures could reduce inflation. [6]

0455/22/F/M/18

In March 2016, the Canadian government announced increases in

government spending including an increased subsidy to environmentally
friendly technology. It also announced that high income earners would face an
increase from 29% to 33% in the highest rate of income tax. Changes in
government spending and taxation can influence a country’s inflation rate.
 Discuss whether or not an increase in the highest rate of income tax
will benefit an economy. [8]

MONETARY POLICY
0455/21/O/N/23

One reason why the price of houses in cities such as Hong Kong, London,
and New York is very high, is the low price elasticity of supply of houses.
Trade unions in some of these cities are calling for more affordable housing
for workers. Governments are also trying to implement various microeconomic
policy measures to reduce the price of houses. In addition, the stability of the
housing market can impact upon the effectiveness of monetary policy.
 Identify two monetary policy measures. [2]

0455/22/O/N/22

While 15% of US exports go to Mexico, 80% of Mexico’s exports go to the US.

In 2019, the US government imposed some methods of protection to reduce
imports from Mexico. This US action caused a fall in Mexico’s foreign
exchange rate. Despite a rise in its inflation rate, Mexico’s central bank
reduced the rate of interest from 7.75% at the end of 2019 to 6.5% in March
2020.
 Discuss whether or not a decrease in the rate of interest will
increase a country’s GDP. [8]

0455/22/F/M/21

It is estimated that half of Egyptian men smoke. This is one of the highest
rates in the world. In recent years the Egyptian government has increased the
tax on cigarettes. The government and central bank have also tried to reduce
inflation and improve Egypt’s international trade performance. The Egyptian
government could use subsidies to reduce its deficit on the current account of
its balance of payments.
 Analyse how a central bank could reduce inflation. [6]

0455/22/M/J/20

A number of countries are withdrawing high value banknotes. For instance,

Singapore plans to stop issuing its $10000 note. High value notes were
originally intended to act as a convenient store of value. Central banks are
concerned some notes are now being used illegally. The Singapore Police
Force and the Monetary Authority of Singapore (its central bank) were trying
to recruit more workers in 2017. It was expected that the central bank would
raise the rate of interest in 2018.
 Discuss whether or not a central bank should raise the rate of
interest. [8]

0455/22/F/M/20

African countries are expected to experience growth in their output. It is also

predicted that Africa’s population will increase from 1.1bn in 2017 to 4.2bn by
2100, when Nigeria will account for one in twelve of the world’s births. Nigeria
and South Africa are expected to experience the greatest rise in investment
(spending on capital goods) over this period, and a change in their gender
distribution.
 Discuss whether or not a cut in the rate of interest will increase
investment. [8]

0455/23/M/J/18

In early 2016, the central bank of the Republic of Turkey cut interest rates five
times. This was despite an inflation rate of 7.6%. The economy had a
combination of a low saving rate and weak investment. To stimulate economic
growth the Turkish government announced a package of reforms including
subsidies for research and investment.
 Analyse the impact of a cut in interest rates on saving and
investment. [6]

SUPPLY-SIDE POLICY
0455/21/M/J/22
Uganda specialises in agricultural products and has a relatively small secondary sector.
In the 1990s, the Ugandan government privatised most of its firms, including banks and
railways. Some economists thought this privatisation was unsuccessful because poverty
increased and unemployment remained high. In recent years, the Ugandan government
has used supply-side policy measures to reduce unemployment.
 Discuss whether or not the use of supply-side policy measures will reduce
unemployment.[8]
0455/23/O/N/20
The use of supply-side policy measures, including deregulation, is moving China closer to
a market economic system. Some supply-side policy measures, such as education and
subsidies, can also increase a country’s economic growth rate. China joined the World
Trade Organisation in 2001 and has since removed some quotas on imports and reduced
some import tariffs. These measures may influence the size of its current account
surplus.
 Define deregulation. [2]
 Analyse how education and subsidies can increase a country’s economic
growth rate. [6]
0455/21/O/N/20
Free trade has allowed the Mexican economy to specialise in low-cost manufacturing.
Unemployment nationally is relatively low, but approximately 50 million people were still
considered to be in poverty in 2016. In addition, there are worries that technological
advances will soon replace labour with capital.
 Discuss whether or not supply-side policy measures can reduce
unemployment. [8]
0455/23/M/J/18
In early 2016, the central bank of the Republic of Turkey cut interest rates five times.
This was despite an inflation rate of 7.6%. The economy had a combination of a low
saving rate and weak investment. To stimulate economic growth the Turkish government
announced a package of reforms including subsidies for research and investment.
 Discuss the impact of supply-side policy measures on government
expenditure and on government revenue. [8]