Macroeconomics: Implementing Policy

What Macroeconomics: Implementing Policy covers

Implementing Policy is examined on component 02 of OCR Economics, Macroeconomics. 110 recall questions across 9 subtopics.

The 9 subtopics

Each one has its own page.

• The government budget, types of tax and the budget balanceRecall questions on the government budget, direct and indirect, progressive and regressive taxes, current and capital spending, and budget deficit and surplus calculations.Open →
• National debt, cyclical and structural deficits and crowding outRecall questions on national debt calculations, cyclical and structural deficits, discretionary policy, automatic stabilisers, and when crowding out is weak.Open →
• The Laffer curve, average and marginal tax rates and limits of fiscal policyRecall questions on the Laffer curve, calculating average and marginal tax rates, income tax cuts on aggregate demand and supply diagrams, and the limitations of fiscal policy.Open →
• Interest rates, the money supply and inflation targetsRecall questions on monetary policy, interest rate changes on aggregate demand and supply diagrams, transmission channels, the money market diagram, and inflation rate targets.Open →
• Quantitative easing, the exchange rate and limits of monetary policyRecall questions on quantitative easing, interest rate cuts on the foreign exchange market, depreciation and the inflation target, and the limitations of monetary policy.Open →
• Privatisation, deregulation and subsidies as supply side policiesRecall questions on supply side policy on aggregate supply and production possibility diagrams, market-based and interventionist approaches, privatisation, deregulation and subsidies.Open →
• Competition policy, infrastructure, education and tax and benefit reformRecall questions on competition policy, infrastructure, education, training and research spending, and income tax and benefit reforms including the unemployment trap.Open →
• Labour market flexibility, immigration control and limits of supply side policyRecall questions on labour market flexibility, immigration control and its effects on wages and aggregate supply, and the limitations of supply side policy in a recession.Open →
• Conflicts between macroeconomic policy objectivesRecall questions on conflicts between growth, inflation, unemployment, the current account, equity and sustainability, stagflation, supply shocks, and how governments judge trade-offs.Open →

What you need to know

Answer each one before you reveal it.

Take Macroeconomics: Implementing Policy further

The same content, four other ways.

Commonly confused

Pairs that lose marks when they are blurred together.

• Direct tax vs Indirect tax

  Direct tax: a tax levied on income or wealth and paid by the person who bears it. Indirect tax: a tax levied on spending, which the seller collects and may pass on.

• Discretionary fiscal policy vs Automatic stabilisers

  Discretionary fiscal policy: a deliberate change in tax or spending announced by government to affect demand. Automatic stabilisers: the parts of the budget that offset the cycle without any decision being taken.

• National debt vs Budget deficit

  National debt: the total stock of government borrowing still outstanding. Budget deficit: the amount by which government spending exceeds its receipts in one year.

Questions from this topic

Each one with the model answer underneath.

1. 1

   What is the government budget?

   Model answer

   It is the government's plan for its revenue and its expenditure over a financial year, setting out what it will tax and what it will spend.

2. 2

   Distinguish a direct tax from an indirect tax, giving one example of each.

   Model answer

   A direct tax is levied on income or wealth and is paid to the government by the person who bears it, such as income tax; an indirect tax is levied on spending and is collected by the seller, who may pass part of it on to the consumer, such as value added tax.

3. 3

   What happens to the average rate of tax as income rises under a progressive tax, and under a proportional tax?

   Model answer

   Under a progressive tax it rises, so higher earners hand over a larger proportion of their income, whereas under a proportional tax it stays the same at every income level.

4. 4

   Why is a duty on an everyday good such as tobacco usually regressive?

   Model answer

   Poorer households spend a larger share of their income on the taxed good, so the same cash payment takes a bigger proportion of a low income and the average rate falls as income rises.

5. 5

   Two households each pay £600 in duty on the goods they buy over a year. One has an income of £15,000 and the other £50,000. Calculate the average rate of tax for each and state whether the duty is progressive or regressive.

   Model answer

   The average rate is 600 ÷ 15,000 = 4.0% for the first household and 600 ÷ 50,000 = 1.2% for the second, so the rate falls as income rises and the duty is regressive.

6. 6

   What is the difference between current and capital government expenditure?

   Model answer

   Current expenditure is day-to-day spending on goods, services and public sector wages that is used up within the year, while capital expenditure creates or improves long-lived assets such as roads, railways and hospitals.

What is inside Levo

Six ways to work the same material.

Macroeconomics: Implementing Policy revision questions

What does Macroeconomics: Implementing Policy cover in OCR A-Level Economics?

9 subtopics: the government budget, types of tax and the budget balance, national debt, cyclical and structural deficits and crowding out, the laffer curve, average and marginal tax rates and limits of fiscal policy, interest rates, the money supply and inflation targets, quantitative easing, the exchange rate and limits of monetary policy, privatisation, deregulation and subsidies as supply side policies, competition policy, infrastructure, education and tax and benefit reform, labour market flexibility, immigration control and limits of supply side policy and conflicts between macroeconomic policy objectives. Each one has its own page with questions and model answers.

How is Macroeconomics: Implementing Policy organised?

By the OCR H460 specification, subtopic by subtopic, so it matches the order you are taught it in.