In 2024, Zephyria’s Treasury Board revealed that attempts to eliminate the national fiscal shortfall have stalled. Due to persistent global supply chain disruptions and stagnant labor productivity, the nation's budget deficit widened to 6.8% of GDP.
Nonetheless, the Economic Forecast Committee argued that if annual real GDP growth accelerates from its current weak rate of 0.5% back toward its long-term trend of 3.0%, automatic stabilizers will become highly active. Under a sustained higher growth trajectory, tax yields will rise and public assistance costs will diminish, allowing the fiscal gap to close without implementing aggressive austerity programs.
Extract G states: "...under a sustained higher growth trajectory, tax yields will rise and public assistance costs will diminish, allowing the fiscal gap to close..."
With the help of a diagram, explain why a higher rate of economic growth is likely to reduce the budget deficit.
245 exam-style questions on AQA A Level Economics 2.5 Fiscal policy and supply-side policies, covering 2.5.1 Fiscal policy and 2.5.2 Supply-side policies. Each one has a worked solution and a mark scheme showing where the marks go.